Will Slowing U.S. Auto Sales Clobber Ford's Profits?

Inventories are rising, and a discount war is brewing. That's not good news for Ford.

Mar 2, 2014 at 9:01AM

Us

Strong pickup sales and low incentives have kept Ford's profits high. But as sales slow, a price war could be brewing -- and that could make a big dent in Ford's bottom line. Photo credit: Ford Motor Co.

Ford (NYSE:F) has followed a wildly successful strategy over the last several years. The Blue Oval sharply trimmed its global model line, invested more in each new vehicle, and came up with a line of cars and trucks that offered buyers a premium experience -- and that Ford has been able to sell at premium prices.

Those strong new products, along with sharply reduced incentives and a range of appealing, high-profit options packages, have given Ford very strong profits in North America over the last several quarters. With Ford's leadership working hard to overhaul a money-losing European operation while simultaneously investing in big growth in Asia, those big profits have essentially carried the company.

But are they now at risk? The U.S. new-vehicle market is showing signs of slowing down. Inventories across the industry have risen sharply over the last few months, and more and more automakers are ratcheting up discounts to try to jump-start sales. 

That could be a problem for Ford -- and rival General Motors (NYSE:GM), too. As Fool contributor John Rosevear explains in this video, analyst estimates for February sales are not looking good -- and the pressure on Ford to cut prices (or lose sales) could be rising.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends and owns shares of Ford. It recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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