Despite doubts that new vehicle sales can continue surging, automakers keep posting better and better results. If you were asked which automaker would be leading the industry in terms of year-over-year sales gains through the first half of 2014, which one would you have picked?
Ford Motor Company (NYSE: F ) would have been a popular option, surely. General Motors (NYSE: GM ) had a lot of momentum at the end of 2013, and Toyota always produces huge sales figures. The answer is none of those automakers, of course.
Out of the five best-selling automakers in the U.S., Fiat Chrysler Automobiles' (NASDAQOTH: FIATY ) 12.3% increase in sales through June, compared to last year's time frame, is more than double its nearest competitors'. FCA's year-over-year sales gains, often in double-digit amounts, have consistently led the pack in 2014, though its overall sales volume still trails Ford's, GM's, and Toyota's in the U.S. market.
Last month, FCA posted a 9% sales gain to reach 171,086 units, with its Jeep brand recording its best June sales performance ever. When adjusting FCA's sales gain for selling days -- because last year's June had 26 selling days compared to last month's 24 selling days -- its result is even better than it looks: an 18% gain over last June's sales.
What's driving the gains?
Jeep has continued to thrive, as sales of SUVs and crossovers continue to surge in the U.S. market. Sales of the Jeep brand were up 28% year over year in June, even on an unadjusted basis, and the Compass, Patriot, and Wrangler models have set respective monthly sales records in every month this year.
Jeep isn't the only brand helping FCA set industry-leading, year-over-year sales gains. Its Ram pickup truck also had its best June sales performance in 10 years; it surged 12% last month, compared to last year's June.
Looking at the big picture, FCA's future really lies with its Jeep brand successfully expanding globally. Fortunately, Jeep has a powerhouse brand name, and the segments in which it competes are exploding in popularity all over the world. It's for that reason that Jeep likely will become FCA's lead global brand. Don't be surprised if Jeep expands to account for as much as a third of FCA's global sales by 2018.
The people's champion -- Ford
The Blue Oval is often looked at favorably for avoiding the bankruptcy courts during the recent recession.
Ford's sales in June declined 6% compared to last year, to 222,064 units sold. However, when adjusted for selling days, Ford's sales performance last month was actually 2% greater than that during June 2013. That obviously trails FCA and GM's respective adjusted sales gains of 18% and 9%, but there's more to Ford's story than what the numbers show.
What's going on?
First, investors should consider that Ford has historically had higher fleet sales than most of its competitors. That's changing, as Ford continues to refocus on more profitable retail sales, rather than fleet sales. Remember -- not all fleet sales are bad. Commercial and government fleet sales are often profitable; it is fleet sales to daily rental companies that aren't looked upon favorably for automakers.
With that in mind, consider that Ford has made year-over-year progress to cut sales to rental fleets. Sales to rental fleets accounted for 14% of Ford's sales through the first half of 2013; through the same time frame this year, sales to rental fleets have been cut to 12% of overall sales. That 2% cut will have some negative impact on Ford's overall sales, though each remaining sale will be more profitable to the company.
For proof that this is happening, consider the Escape's sales figures last month. Ford's Escape sales to fleets declined 57% in June compared to last year, while its retail sales surged 9%. That equated to an overall decline of 12.5% in June, unadjusted for selling days and compared to last year's June; yet, it's a more profitable sales mix.
Second, investors also need to consider the strategy Ford is taking with its aggressive vehicle launch schedule this year. When an all-new vehicle design is launched, it puts automakers in a sticky situation. On one hand, if Ford has too much inventory of its outgoing design, it will require hefty incentives to move the vehicle off dealer lots, which is less profitable and also cannibalizes sales of the newer design -- not an ideal situation.
On the flip side of the coin, if Ford has too little inventory of its outgoing design, it risks losing incremental sales while dealerships await for new product to arrive in full supply. Ford appears to be going with this strategy, which risks a slight sales decline amid the old and new model transition, but doesn't risk very unprofitable sales due to heavy incentives on the older design.
For a taste of this plan in action, let's look at Ford's F-Series sales last month. Sure, sales of the F-Series were down 11% on an unadjusted basis compared to last year; but Ford announced its full-size truck had the lowest incentives among competing players in the segment. It can't be understated how big a victory that is: Outgoing designs and the oldest truck models rarely, if ever, have the lowest incentives. Ford is counting on the all-new 2015 F-Series trucks to make up market share losses when it hits dealerships later this year.
Those are some of the factors that could be behind Ford's lackluster sales gains, but expect that to turn around in 2015, as its new designs continue to roll out at a breakneck pace this year.
What technological shift is Ford calling "fantastic"?
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there's an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.