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What's Wrong With Ford Motor Company?

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.

Ford's U.S. vehicle deliveries declined in Q2 (Photo: The Motley Fool)

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.

The 2015 F-Series trucks will boast much better fuel economy than the outgoing models. (Photo: Ford.)

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.

Newer vehicles in Ford's portfolio like the Fusion posted solid Q2 sales gains. (Photo: Ford.)

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.

Foolish conclusion
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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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 20, 2014, at 7:21 PM, tomtree1 wrote:

    Hopefully it is from consumer blow back. Many people got hurt very badly when Ford sold Known engineered failure with F-250 series. I got one, motor died twice and Ford told me "Too bad for your loss"-- $50,000.00 loss.

    And they continue to tell us "too bad for your loss, we don't care" and "We won our lawsuit against people that manufactured our engines and trucks-you just don't have enough money to win against us" but hey, they want us to keep buying from them, no thanks. Signed- Burned so bad my **s still hurts

    Don't buy from Ford!!

  • Report this Comment On July 20, 2014, at 8:02 PM, Jason87467 wrote:

    This article does not state that Ford quality has dropped a lot. I think that the main reason Ford sales are not that good.

  • Report this Comment On July 21, 2014, at 11:27 AM, TMFGemHunter wrote:

    @Jason87467: What makes you think that Ford quality has dropped a lot? I think it's much better than it was 10 years ago -- or 20.


  • Report this Comment On July 21, 2014, at 12:40 PM, jackpwers wrote:

    The dealerships I have been to have been full of over arrogant salesmen that drive me to a toyota or hyundai dealer. They tell me I am stupid for driving a hyundai.

  • Report this Comment On July 24, 2014, at 6:55 AM, mds wrote:

    I bought it at $15 and will sell at $20.

    However will rebuy at $15 if there is a pullback.

    All I can say is thank GOD I don't own GM.

    They are a parasitic company making inferior cars.

    Ford took $0 in federal funds.

  • Report this Comment On August 06, 2014, at 11:19 AM, jack3828 wrote:

    Guys, I have been around for a very long time,and have owned a lot of fords.The fords that are being built now are the best "QUALITY ON THE ROAD TODAY".If ford offered a warranty like "THE HYUNDAI WARRANTY" FORD WOULD SELL A RECORD AMOUNT OF CARS. A warranty like HYUNDAI, SHOWS CONFIDENCE IN THE PRODUCT THAT YOU PRODUCE.

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Adam Levine-Weinberg

Adam Levine-Weinberg is a senior Industrials/Consumer Goods specialist with The Motley Fool. He is an avid stock-market watcher and a value investor at heart. He primarily covers airline, auto, retail, and tech stocks. Follow him on Twitter for the latest news and commentary on the airline industry!

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