For years, one big knock against Ford Motor Company (NYSE:F) has been its all but dead luxury brand, Lincoln. It's true, sales of Lincoln have spiraled downward for more than a decade before crashing in 2009, and its been at the bottom of a hole since then. Ford and its investors both know that having a successful global luxury brand will be essential to growing business and recording market beating investment returns.
Ford is beginning to open up its wallet to fuel Lincoln's revival; here are the vehicles at the forefront of the turnaround strategy and why a successful Lincoln brand matters to Ford investors.
What's at stake?
Having a successful luxury brand is vital for automakers for three simple reasons. First, luxury vehicles are dubbed that for a reason -- they provide a plethora of extravagant features, technologies, and other add-ons that drive a vehicle's price higher. Luxury vehicles bring in much higher average transaction prices, or ATPs, which lift company revenues higher on a lower volume of sales. Second, just as top-line revenues increase from higher ATPs, bottom-line profits and margins rise as well.
Third, in addition to higher prices and profits, luxury segment sales are less affected in times of a recession. Also, luxury sales typically don't compete with automaker's mainstream brands that sell at a higher volume and lower price point. Basically, selling luxury vehicles is a win-win situation -- as long as you're selling them successfully, that is.
Opening the wallet
Just like with most things in business, success starts with an excellent product. If Lincoln's new vehicles are able to expand sales and generate revenue at a faster clip, then management, as well as dealerships, will be more willing to spend additional cash on improving and launching more products -- a virtuous cycle. Creating that virtuous cycle will take years, it could even take decades, but Ford hopes that new vehicle launches before 2016 will get the ball rolling.
Ford promised that four new Lincoln vehicles would be launched by 2016; two of those have been unveiled: the MKZ sedan and the MKC crossover.
Lincoln's MKZ sales stumbled during last year's launch but recovered once production bottlenecks were overcome and ample supply was able to reach dealerships. This year, sales of the MKZ were up 57% through April, though with easy year over year comparisons. However, even with easier comparisons, the MKZ's gains are almost entirely responsible for the Lincoln brand's overall 21% sales surge in 2014, compared to last year. With the MKZ off to a solid start, Ford is preparing to hand the baton off to Lincoln's MKC.
Lincoln's MKC, which is due to hit dealerships shortly, is a vehicle that is expected to take the brand's sales to new heights in the U.S. market. One reason for such hype is because the MKC will be Lincoln's entry into the luxury market's hottest selling segment: compact crossovers.
IHS Automotive is predicting sales of the MKC to reach between 26,000 and 28,000 annually, according to Automotive News. Put another way, 28,000 sales is nearly the same amount that the entire Lincoln luxury brand sold through April this year (28,046 units). Make no mistake, if the MKC's launch goes smoothly, the new Lincoln crossover will instantly become a vital part of the brand's sales strategy.
In addition to the new MKZ and MKC, Lincoln will launch another new vehicle next year and another in 2016. One other vehicle, planned for a 2015 launch, is actually a bonus and won't count toward the tally of four new Lincoln vehicles becoming available, but has been reengineered. You might have heard of it: the Lincoln Navigator.
Two decades ago, Lincoln's Navigator drove the entire brand's sales high enough for it to become the No. 1 U.S. luxury brand. Those days are long gone. Sales of the Navigator peaked in the late 1990s; last year, they were at one-fifth the highs achieved in those halcyon days. Don't expect sales of the Navigator to surge anywhere near its former peak, but a modest bump in sales to compete with the Cadillac Escalade would be a small victory. Furthermore, as one of the most recognizable names in luxury SUV history, the Navigator should bring intangible value, and potential foot traffic, to Lincoln showrooms.
Lincoln is in the very early chapters of its turnaround story and these vehicles are likely just setting the stage for what will become a strategy that will span decades. Let's also not forget that Lincoln's story has been mostly limited to the U.S. market, a fact that looks set to change, sooner rather than later. Ford is about to create a new opportunity for Lincoln to succeed by finally launching the brand in China. Lincoln will begin selling vehicles in seven Chinese cities this fall, and in 20 stores by the end of 2014.
With four new vehicles on the way, an overhauled Navigator soon for sale, and its entrance into the lucrative Chinese market, Ford hopes to begin erasing one big knock investors have against it: an all but dead luxury offering.
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Daniel Miller owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. 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.