In the grand scheme of things, the automotive industry in the U.S. recorded a great April -- sales rose 8% to nearly 1.4 million vehicles. That's a strong annualized sales rate of 16.1 million, up from 15.2 million a year earlier. Three of the seven major automakers posted double-digit-sales gains and all but one posted increasing sales -- the outlier being Ford (NYSE: F ) . While it was certainly a disappointing month for the Blue Oval, here are a couple of factors to consider when looking at Ford's April sales results.
Lincoln luxury woes
One of the first groans from investors came from sales figures for luxury brand Lincoln. Sales dropped 11% in April, which was a big disappointment after its hot start to the year -- brand sales prior to April were up 31% in March, 36% for the first quarter, and 27% over the previous six months. But investors should consider two things in digesting Lincoln's drop last month.
First, it's reasonable to say that very strong Lincoln sales in March pulled in some of the brand's April sales. Lincoln sales nearly hit 9,000 in March, which was its best monthly result that I have on record for the past two years. In fact, Lincoln sales only topped 8,000 twice in that same time frame and neither result managed to climb higher than 8,200.
Second, April's prior-year sales comparison was a tough one. The MKZ is Lincoln's best-selling vehicle and its results will heavily affect the overall brand's sales result. It wasn't a bad month for the MKZ, but its sales of 3,054 failed to compare to April 2013's result of more than 4,000.
Many forget that the MKZ's launch stumbled out of the gate: A bottleneck in production caused a significant build up in demand that was finally supplied in April of last year, which sent sales surging above typical levels. Consider that in January and February of last year, MKZ sales failed to top 500 and 1,000 units, respectively, before barely breaking 2,000 in March and finally bursting to more than 4,000 in April. That backed up demand and resulting surge of sales last April made for a difficult comparison during this year's April sales results.
Sure, Lincoln's 11% decline last month was an initial disappointment, but it isn't nearly as big a deal as many investors are making it out to be. Heck, even with April dragging on results, Lincoln sales are still up 21% for the year. Furthermore, it's better to look at sales in three-month chunks to help smooth out some of the seasonality that exists in the automotive industry; so before investors raise a red flag on Ford's luxury lineup, wait to see May and June sales figures.
Ford's car segment stalls
Sales of Ford's full-size trucks were up another 8% in April, but a decline of 9% in its car segment continued to drag down sales figures. In fact, not one single Ford car model managed to improve sales over April 2013; only one vehicle, the Mustang, has managed to eke out a sales increase through the first four months of the year. What gives?
Part of the explanation is due to changing industry trends and consumer tastes. Many consumers are moving away from sedans and passenger vehicles, opting instead to purchase crossovers or SUVs. While that holds true across the industry, there's also a Ford-specific explanation.
Ford is focusing on improving its sales mix both in the U.S. and globally. Management has commented time and time again about increasing the number of "high-quality" sales. The folks at the Blue Oval consider those made to retailers, commercial fleets, and government fleets to be "high-quality" sales. Essentially, any sale that isn't to rental customers or dealer registrations is considered more valuable.
Part of the reason sales to rental customers aren't desirable is because selling those vehicles in bulk requires deep discounts. In addition to lower-quality sales bringing Ford's overall margins down, it also causes resale value of the company's vehicles to decline over time because those rental vehicles will eventually hit the used car market.
Ford's focus on high-quality sales sent rental car sales down 24% in April, which is certainly part of the reason its overall car segment sales were down 9%. Is it the only reason? Probably not.
It's also fair to mention that car segments, especially midsize and small sedans, are among the most competitive in the entire automotive industry.
Even with the explanations noted above, Ford's April results were less than desirable for investors. There certainly isn't a magical data point that will help explain where exactly Ford's sales are between dismal and excellent, but here's one graph to consider.
Ford has put together some of its most profitable years in history recently, and its average transaction prices on vehicles continue to climb higher. That means consumers want to buy Ford's vehicles; investors can expect that demand to remain strong while the company is undertaking its most aggressive vehicle portfolio refresh in history. Regardless of the decline in April's sales, Ford is clearly doing something right.
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