Ford Motor Company (NYSE:F) said on Wednesday that its U.S. sales fell 12% in October on weakening demand, unfavorable timing of deliveries to fleet customers, and a year-over-year comparison that was made difficult by an unfavorable quirk of the calendar.
Ford's retail sales fell 7%.
The key numbers
Ford reported its U.S. sales one day later than usual after a fire at its headquarters disrupted its data collection on the last day of October.
|Metric||Total Sold||Change (YOY)|
|Ford brand sales||179,744||(12.5%)|
|Lincoln brand sales||9,069||6.9%|
About that quirk of the calendar: Last month had two fewer "selling days" than did October of 2015, making for a tough year-over-year comparison. "Selling days" exclude Sundays and other days when new-car dealers are typically closed.
What worked (and what didn't) for Ford in the U.S. last month
At first glance, there wasn't a whole lot to celebrate in Ford's report for October. Nearly every segment showed a decline from a year ago. The sole bright light was Lincoln sales, where much of the brand's 6.9% gain was explained by a single factor: the all-new Continental sedan sold in much greater numbers than the MKS, its outdated predecessor, did a year ago (1,222 to 458).
Drilling down a little further, there were a few more encouraging signs. Retail sales of the F-Series pickup line were up 2% on high demand for the all-new 2017 Super Duty models. Prices were strong, with 75% of retail F-Series sales consisting of higher-end Lariat, King Ranch, and Platinum series models. Ford U.S. sales chief Mark LaNeve said in a statement that average transaction prices for the F-Series were up $1,600 from a year ago, versus an industry-average $600 increase. Ford's big Transit commercial vans also had a good month, with sales up 9%. But Ford's overall truck sales were down on a 61.5% year-over-year decline in sales for the small Transit Connect commercial van.
Elsewhere, the news was grim. With the single exception of the Police Interceptor Utility, a version of the Explorer, sales of all Ford-brand car and SUV models were down year-over year. Every single one.
The new Continental was much of the story at Lincoln, but the midsize MKZ sedan (up 3.1%) and MKX crossover (up 4.1%) both managed gains. All other Lincoln models declined, including the compact MKC crossover, which resides in what has been one of the hottest market segments: Small premium crossover SUVs.
Pricing, incentives, and inventories
Ford said that its overall transaction prices were up $800 from September, ahead of the industry's $460 increase. The new Super Duty probably had a lot to do with that. Ford's spending on incentives is still relatively restrained, with its per-vehicle spend up $180 from a year ago versus an industrywide increase of $390.
Slowing sales caused Ford's inventories to swell in October. As of the end of the month, Ford had about 650,000 vehicles in inventory, a 90-day supply. That's high, higher than the 84 days' worth that rival General Motors (NYSE:GM) had at the end of October. Under 70 days is considered ideal under most circumstances, though it's not uncommon for inventories to be a little higher at this time of year.
"Ford has been taking actions to match production with demand, as outlined during the company's third quarter financial results, and is well positioned for Black Friday and year-end sales events," the company said in a statement. "The company's fourth-quarter North American production guidance of 700,000 vehicles remains unchanged."
Those "actions to match production with demand" included week-long production halts at several North American factories last month. Given that Ford's inventories rose from 80 days' supply on Sept. 30 to 90 days' supply on Oct. 31, there may be more production cuts to come.
Analysis: Ford is losing ground in its most important market
Ford is a global company, but North America is still by far its most important market in terms of profits. The U.S. is the driver of Ford's North America results, and in recent years strong truck and SUV sales in its home market have helped the Blue Oval to fat profit margins.
While Ford's U.S. sales are down from a record 2015, sales totals are still at a high level and pricing remains strong. By choosing to reduce production rather than increase discounts, CEO Mark Fields is prioritizing profit margins over total sales numbers. That's the right thing to do from a shareholder's perspective, and Ford's fourth quarter should be a solid one.
But looking a little further out, some worrisome trends are taking shape. Ford's 12% year-over-year sales drop underperformed all five of its largest rivals in the U.S. market.
|Company||October 2016 Sales||Change (YOY)||Year-to-Date Sales||Change (YOY)|
|Fiat Chrysler Automobiles||176,609||(10%)||1,890,969||2.2%|
Ford's 7% retail sales decline might be a bigger concern. It came in a month in which Ford had plenty of inventory -- its sales weren't limited by shortages of hot models, in other words -- and in which rival GM managed a 2.5% retail gain.
How will Ford fare as the cycle turns down?
Here's the takeaway for investors: Auto sales are cyclical, and the overall U.S. market appears to be past its peak. At this stage of the cycle, it's typical to see up months and down months, with some competitors faring better than others.
Ford appears to have lost market share in the U.S. last month. A one-month drop is no big deal. But if Ford continues to lose ground, that won't bode well for its chances of generating good profits when the market really starts to weaken, as it eventually will.