As most automotive investors know, Ford Motor Company's (NYSE:F) profit largely revolves around its F-Series pickups, which sell in the most profitable segment in the U.S. market. Full-size pickups, in this case the F-Series and General Motors' (NYSE:GM) Chevy Silverado, are also the two best-selling vehicles in the U.S. most years by a wide margin. That means full-size pickups offer the fastest way for Detroit automakers to gain or lose market share, as well as massive profits.
With those details setting the stage, a month where one automaker's truck sales lag far behind its competitors can be a big deal. That's what happened last month, when Ford trailed its competitors in terms of year-over-year sales gains by quite a bit. Let's dig into the issue, explain how big of a deal it really is, and cover what investors should watch going forward.
Where art thou, F-Series?
Sales of Ford's F-Series pickups were down 4.3% in May, while sales of the Silverado, Sierra, and Ram surged 8%, 14%, and 17%, respectively. So that's a problem for Ford, right?
No, it isn't -- at least not in this situation. First we have to consider that the comparable F-Series sales in May were pretty impressive. In fact, sales of the F-Series in May delivered their second-best monthly performance since the recession. As you can see in the graph below, sales are still trending strongly higher.
In addition to its sales trending higher, and despite posting a slight year-over-year decline, the F-Series has still substantially outsold the Silverado and Ram trucks this year.
Instead of fighting for market share with an older truck model, Ford is more focused on keeping the sales of its outgoing model -- before its highly anticipated all-new 2015 F-150 hits dealerships later this year -- as profitable as possible. This is a goal that it's accomplishing, as its outgoing F-Series trucks have the highest average transaction prices and lowest incentives among Detroit competitors -- a very impressive feat from the oldest truck design of the bunch.
Now that we've covered the F-Series sales situation in May, let's discuss what to expect going forward. Investors would be wise to watch Ford's truck inventory levels, which executives discuss during the monthly sales calls. If Ford has too much truck inventory, it could cause a slow start for sales of its all-new F-150, as some consumers will opt for heavily discounted older models that are overflowing on dealership lots. If Ford has too little inventory, the company simply loses out on incremental -- and very profitable -- sales. This gets trickier as the transition from its older F-150 to its new aluminum-bodied 2015 F-150 will require 13 weeks of planned downtime.
Fear not, Ford investors... everything seems to be in good shape thus far. Heading into the planned down time, Ford's inventory of trucks has increased from 258,000 trucks last May to 298,000 last month. During the last 12 months, sales of the F-Series averaged roughly 64,000 units per month, so there's plenty of inventory to make sure the company doesn't lose any sales. In addition to a safe level of inventory, we have to keep in mind that there won't be a period of time where the old model is completely out of production.
Ford's production of the F-150 is in two plants, one in Dearborn, Mich., and another in Kansas City. Dearborn will switch over first, with Kansas City to follow at a later date. Also, keep in mind that Kansas City's plant has expanded to produce the F-150 in three shifts to help increase production capacity.
To sum everything up, May's F-Series sales decline isn't something to worry about, as sales remain at a high level and very profitable. Investors would be wise to watch inventories as Ford heads into a very important and delicate launch of its most important product, the 2015 F-150. Currently, everything looks to be very much on track and ready for a smooth launch, and that's great news for Ford investors.
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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.