Ford Motor Company: Should You Be Concerned By the Slowdown in F-Series Sales?

Source: Ford Motor Company

Sales of Ford Motor Company's (NYSE: F  ) F-Series pickup truck haven't been growing the way many investors would think or hope. And this can become startling at first realization, on account that the F-Series truck isn't just the top-selling vehicle at Ford, but has been the top selling vehicle in the United States for 32 consecutive years. 

However, investors shouldn't waste too much time sweating the notion that the F-Series is losing ground to rivals or falling out of favor with customers.

A deeper inspection of the F-Series sales numbers
Through the first six months of 2014, sales of the F-Series pickup truck have totaled 365,835 units, about 1,500 less than the first six months of 2013. Let's take a month-by-month look below:

Month 2013  2014 Change
       
January 46,841 46,536 (0.7%)
February 54,489 55,882 2.6%
March 67,513 70,940 5.1%
April 59,030 63,387 7.4%
May 71,604 68,520 (4.3%)
June 68,009 60,560 (11.0%)
       
Total 367,486 365,825 (0.5%)

Source: GoodCarBadCar.net, Table created by author.

Overall, U.S. auto sales are up 4.3% in the first half of 2014, compared to the first half of 2013. The 0.5% sales drop doesn't seem all that bad, but the precipitous drop in June and 4.5% fall in May are concerning. 

And although General Motors' Chevrolet Silverado sales are down 0.8% on the year, Ram pickup sales are up 19.7%, to 203,860 units. For Ram, these results are even more impressive, considering it increased sales over 21% for all of 2013 too.

But let's have a closer look at Ford's F-Series. 

13-week unpaid vacation
The F-Series assembly lines will be shut down for a total of 13 weeks in 2014 in order to make necessary changes for the 2015, aluminum bodied F-150. This includes eleven weeks of downtime at the Dearborn, Mich., plant and two weeks of downtime at the Kansas City plant. 

To get ready for the idle assembly lines, Ford is cranking out as many trucks as it can, hoping to strike a balance in supply by having enough vehicles to meet demand, but not too many as to avoid heavily discounting them later. 

Source: Ford Motor Company

And speaking of discounting, Ford has been taking its foot off the gas there, too. In June, sales slumped over 12%, which is rather significant for Ford. However, this can be attributed to the F-Series low incentive plans. As my Foolish colleague Adam Levine-Weinberg wrote: "In June, Ford had the lowest incentives and highest average transaction prices in the pickup segment -- despite having the oldest product. With lower incentives, price-sensitive buyers are moving away from Ford, which is the goal."

In June, the Chevrolet Silverado and Dodge Ram saw sales increase 0.6% and 11.8%, respectively. Even if temporary, perhaps now is when these two brands can make up ground on Ford's steady grip over the pickup market.  

The lost production will certainly hurt. Some analysts suggest that it will cost Ford $800 million in pre-tax profits, as 90,000 units fall from the supply line. 

What is the F-Series to Ford?
Last December, Ford warned investors that 2014 profits would fall between $7 billion to $8 billion, compared to expectations of $8.5 billion. Management also said margins would fall between 8% and 9% in 2014, compared to 9.9% in 2013. 

Source: Ford Motor Company

All of this is due to the 23 new vehicles the company plans to launch this year. But there's one that truly matters: the F-Series. 

The F-Series accounted for almost 32% of Ford's U.S. sales in 2013. A slowdown in F-Series production will not only hurt revenues, but margins too, as it is Ford's most profitable vehicle. 

But this is what investors should be expecting, as management had dutifully warned back in December: Margins and profits will fall.

Short-term pain, long-term gain
All of this is being done in order to pave the way for the 2015 F-150. Should it be the hit that Ford seems to think it will be, then the temporary sales dent and margin drop will all be worth it. 

In other words, if you're a Ford shareholder, and can't figure out the sales drop for the F-Series, then don't sweat it. It's not as if customers don't want it, or that the quality has dropped. It's simply a self-induced slowdown to get ready for the future.

Tampering with your top selling product, especially on the scale of this magnitude, is risky. But come fall, we'll see if it was all worth it. 

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