The U.S. auto market bounced back in a big way this spring, following a slow start to the year. However, Ford Motor Company (NYSE: F ) didn't benefit from this rising tide. Indeed, Ford's U.S. sales have declined in two of the past three months. Fortunately, there may be a relatively innocuous explanation for Ford's recent sales slowdown.
Simply put, Ford is at the beginning of a massive product refresh cycle. Ford is introducing a slew of redesigned products in key categories this year. For the most part, the sales slowdown is attributable to the segments where Ford is about to launch redesigned models. As these new models start arriving on dealer lots, sales growth should reaccelerate.
Ford sales miss the mark
In April, Ford delivered 211,126 vehicles in the U.S., which represented a decline of 1,458 units compared with 2013. A favorable sales calendar allowed it to boost sales in May by 7,499 units year over year to 254,084 vehicles. By contrast, in June -- when the calendar was less favorable -- Ford's U.S. deliveries fell by 13,579 units year-over-year to 222,064.
In total, this means that Ford's U.S. deliveries declined by 7,538 units last quarter: a drop of roughly 1%. Part of this can be attributed to Ford's decision to reduce daily rental sales to boost margins and support resale values. In the first half of 2014, 12% of Ford's U.S. sales went to daily rental fleets, down from 14% in the first half of 2013.
However, the planned decline in daily rental sales is just part of the story behind Ford's U.S. sales trajectory. An even more important part of the story is the company's upcoming product launch cycle.
Refreshing key categories
The Ford F-150 is the most important cog in Ford's 2014-2015 product launch plans. F-Series trucks represent close to 30% of Ford's sales volume in the U.S. -- and the vast majority of its profit. Ford has unveiled an ambitious redesign of its F-Series lineup for the 2015 model year.
The 2015 Ford F-150 will cut up to 700 pounds of weight, primarily through the increased use of military-grade aluminum. This weight reduction (along with other improvements) could lead to big fuel economy gains.
To prepare for the new model, Ford is taking 13 weeks of downtime at its truck plants this year, which will keep F-Series trucks in short supply. The changeover has already started to take a toll on F-Series sales. Through May, F-Series deliveries were up slightly year over year, but deliveries declined by nearly 7,500 units in June.
Other models with redesigned versions arriving for the 2015 model year include the Focus (sales down by almost 4,000 units in Q2), Edge (sales down by nearly 10,000 units in Q2), and Mustang (sales down by about 1,000 units in Q2).
These four products -- which together represent nearly half of Ford's U.S. sales volume -- accounted for a combined sales decline of more than 20,000 vehicles last quarter.
Looking at the rest of Ford's product portfolio, deliveries increased at a perfectly respectable mid-single-digit rate -- despite headwinds related to product mix and lower daily rental sales. In other words, Ford's upcoming product launch cycle appears to be disrupting sales for the moment -- presumably because some buyers are waiting for the new models.
Ford's U.S. vehicle sales declined last quarter, and its ongoing sales slowdown at home is likely to weigh on Ford's profit for the rest of 2014. However, investors already knew this -- Ford projected late last year that earnings would decline in North America in 2014.
However, this is not a long-term downtrend. By the beginning of next year, Ford will have refreshed a significant proportion of its vehicle lineup, with a few additional launches (such as a redesigned Taurus) coming later in 2015. At that point, car buyers should come flooding back into Ford dealerships.
Thus, investors shouldn't worry too much about Ford's apparent sales setbacks in the United States. Indeed, if bad news drives down the price of Ford stock in the second half of 2014, long-term investors should consider jumping in. Ford's pain today is setting the stage for solid profit growth in 2015 and beyond.
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