Ford Motor Company (NYSE:F) said on Wednesday that its U.S. sales fell 6% in May, as a quirk of the calendar made for a tough year-over-year comparison.
About that calendar quirk
Here's the quirk: While the month of May always has 31 days, May of 2015 had five weekends, while May of 2016 had just four. That matters in our comparison, because a lot of cars get sold on weekends, when people who work during the week have time to visit dealers and take test-drives. In auto-industry lingo, May of 2016 had two fewer "selling days" than did May of 2015.
Given that calendar quirk, it's no surprise that Ford's sales fell. And it's no surprise that most of Ford's rivals also posted dismal-looking U.S. sales results on Wednesday -- a marketwide decline was predicted by many analysts, precisely because of that year-over-year drop in "selling days."
How did Ford do in May?
It was a mixed bag. On one hand, sales of Ford's F-Series pickups rose 9%, a very strong result under the circumstances. The F-Series pickups are among Ford's most profitable products, so strong sales bode well for the company's second-quarter result.
Results for Ford's SUVs were more mixed. A revamped-for-2017 version of the Escape has started to make its way to dealers, and that helped the compact SUV to a 5.5% sales increase. On the other hand, sales of Ford's midsize Edge and larger Explorer both fell year over year.
Sales results for Ford's car models weren't mixed: All fell year over year. While Ford officials said the midsize Fusion, Ford's best-selling sedan in the U.S., has maintained its market share, its sales fell 21.5% in May. This isn't as worrisome as it sounds: Nearly all automakers are losing sedan sales as buyers continue to migrate to SUVs and trucks. That trend has helped Ford's profitability much more than it has hurt.
Results were a bit better at Ford's resurgent luxury brand. Lincoln sales rose 7% in May, driven by a very good gain (88%) for the brand's all-new MKX SUV. The MKX, an upscale sibling of the Ford Edge, has been very well received by buyers.
What's it mean for investors?
The auto industry is cyclical. After several years of strong growth in the U.S. new-car market, sales may be approaching a cyclical peak. That doesn't mean a decline is right around the corner, however. Experts note that while further growth may be hard to come by, the U.S. market appears to be stabilizing at a very high pace of sales.
"With new-car demand stabilizing in recent months, we're left with a market that is far more dependent on sales days within a given month," said Kelley Blue Book analyst Karl Brauer. "Given the record numbers we experienced in 2015, and the continued projection for 17-plus million sales this year, the industry remains in a very good place."
A market plateau can lead automakers to boost discounts in order to generate sales growth. That's worrisome for investors, because those discounts erode profits. But right now, pricing in the U.S. new-car market remains strong.
Ford's average transaction prices rose about $1,500 in May from a year ago, company officials said on Wednesday. That's an industrywide trend, according to TrueCar's chief analyst, Eric Lyman, and it's a good sign. "The fact that average transaction prices are still edging up underscores continuing health in demand for new cars and trucks," Lyman said.
The upshot: Despite the drop, Ford is on track for another good quarter
As a Ford investor, I know the cyclicality of the new-car market means Ford's profits will probably start to slip at some point. But I don't think we're there yet. The strong increase in F-Series sales despite the calendar quirk suggests the Blue Oval is on track to another solidly profitable quarter in North America.