Ford Motor Company (NYSE:F) said its U.S. sales fell 7.5% in July on a big year-over-year drop in sales to rental-car and commercial fleets. 

Ford's retail sales fell 1%.

Ford sales: The raw numbers

Metric July 2017 Change vs. July 2016
Retail sales 159,492 (1.0)%
Fleet sales 40,720 (26.4)%
Trucks 80,886 (7.1)%
SUVs 71,067 2.2%
Cars 48,259 (19.4)%
Total U.S. sales 200,212 (7.5)%

Data source: Ford Motor Company.

2017 Ford F-150 Raptor in white, on a dirt road with dust raised.

Strong demand for the brawny F-150 Raptor helped boost average transaction prices on Ford's pickup line in July. Image source: Ford Motor Company.

The good news: High-profit trucks and SUVs still growing

The good news, at least from an investor's perspective, is that Ford's most profitable product lines continued to perform well even though the overall U.S. new-car market is clearly weakening.

Ford's biggest profit driver is the F-Series family of full-size pickups. Sales of the F-Series family rose 5.8% from a year ago. Better yet: The F-Series family's average transaction price rose about $2,500 from a year ago, to about $45,000. 

Ford attributed that pricing gain to two factors: The strong-selling Super Duty pickups, which were new last fall, and the new-for-2017 high-performance F-150 Raptor off-road truck. 

Ford-brand SUVs also did well, with sales up 2.9% from a year ago. Sales of the compact Escape (up 5.5%), midsize Edge (up 6.1%), and larger Explorer (up 12.9%) all helped. But sales of the big Expedition were down almost 40%, as dealers are selling off their last stocks while awaiting an all-new model this fall

A 2018 Ford Expedition SUV in gray, on a winding mountain road.

Ford said preorders for the all-new 2018 Expedition SUV have been strong. Image source: Ford Motor Company.

Ford's U.S. sales chief, Mark LaNeve, said in a conference call on Tuesday that dealer preorders for the all-new Expedition have been strong, with about half of the preorders being placed for Expeditions in the highest trim level, Platinum. That bodes well for the initial profitability of the Expedition when it begins arriving at dealers in a couple of months.

The less-good news: Slipping car sales and fleet issues

Ford attributed much of its overall year-over-year sales drop to two factors affecting its sales to fleet customers. First, the timing of big deliveries to certain Ford fleet customers was unfavorable in July versus a year ago, something that will be made up as the year goes on. 

Second, Ford was affected by a "recall hold" on its popular Transit commercial vans: Deliveries in July fell by two-thirds, or about 7,000 vehicles, from a year ago because vans in inventory were awaiting recall repairs. LaNeve said those repairs have now been made, and Ford again has Transits available for sale; it's possible that some or all of that lost July volume will be made up in August. 

Ford's car models continued to suffer from a market-wide shift in buyer preferences toward SUVs. As a group, sales of Ford-brand cars were down 20.6% from a year ago. But LaNeve said there was some good news hidden in there: Ford's retail sales decline was less than those of some rivals, meaning the Blue Oval gained market share in sedans at retail.

Mustang sales were down 35.1%, but again, there's a story: Dealers are selling down stocks in anticipation of a revamped 2018 model, set to begin arriving soon.

Sales at Ford's luxury Lincoln brand fell 2.5% in what LaNeve described as a soft month for luxury brands overall. As with Ford sedans, Lincoln's drop was less than that seen at some rivals, so the brand gained some market share. 

The upshot: Ford is still riding the auto cycle pretty well

Autos are a cyclical business, and cyclical businesses have cycles, it turns out. The U.S. new-car market appears to be entering the downhill portion of its current cycle, meaning demand for new vehicles is softening -- and there's pressure on automakers to discount in order to generate incremental sales growth.

Ford has said it will increase its incentives as needed, but that it isn't going to discount deeply to chase sales gains. Right now, that's working: Ford's retail sales were down only slightly in July, and its pricing remained strong. With sales gains for its more profitable SUVs and pickups mostly offsetting declines in sales of car models, the profitability of Ford's "mix" of vehicles likely improved as well.

(That was also true at rival General Motors (NYSE:GM), which said that about 80% of its U.S. sales in July were trucks and SUVs, its best monthly mix ever. GM's overall U.S. sales fell 14% in July.) 

Long story short: The market is slipping, and that has historically meant that automakers' profits got squeezed. But so far, Ford has been able to offset that pressure to some extent with strong results for its more profitable product lines and a disciplined approach to incentives (though rising costs were a factor last quarter). 

As long as that continues, Ford's profits should continue to be strong.

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