A little over a year ago, Ford Motor (NYSE:F) made a bold decision to discontinue all of its sedans and hatchbacks in the U.S. in a bid to improve profitability. Instead, the Blue Oval brand is expanding its lineup of crossovers, SUVs, and trucks to offset lost car sales.
General Motors (NYSE:GM) is following a similar strategy. While it isn't eliminating all of the traditional cars from its vehicle lineup, GM is discontinuing several models in the domestic market while adding new crossovers and SUVs to its portfolio and updating its best-sellers.
These moves are already paying off for GM. Ford is on track to see similar improvement over the next year or so thanks to some key model launches that are coming soon.
Sales trends improve dramatically at GM
In the first quarter of 2019, domestic deliveries plunged 7% at General Motors, with all four of its major brands posting sales declines. By contrast, GM reported last week that deliveries fell just 1.5% year over year in the second quarter. Sales declined 5.3% for the mass-market Chevrolet brand, but Buick, Cadillac, and GMC all returned to year-over-year growth.
Crossover and SUV models drove the improvement in GM's sales trend last quarter. The Chevy Equinox, which is the company's highest-volume crossover model, posted a strong 15.8% sales gain. In fact, domestic deliveries for the full lineup of Chevy crossovers and SUVs -- the Trax, Equinox, Blazer, Traverse, Tahoe, and Suburban (in order of size) -- surged 16.9% to 208,579 units. GM has released new versions of several of those models over the past two years.
Within the Chevrolet brand, this big increase in crossover and SUV sales almost fully offset a roughly 36,000-unit decline in car sales. However, sales of the Chevy Silverado pickup -- GM's highest-volume model -- fell 8% year over year in the U.S. last quarter due to supply constraints, particularly for the most affordable versions. With supply already improving, helped by investments to increase production capacity, Silverado sales should rebound in the second half of the year, potentially allowing GM to return to growth in deliveries again.
Ford falls back -- but the headwinds are temporary
In the second quarter, Ford posted a 4.1% decline in domestic deliveries, which was worse than the 1.6% drop it recorded in the first quarter. But digging deeper into the numbers, it's clear that Ford's strategy of shifting toward crossovers, SUVs, and trucks is starting to pay off.
Ford's domestic car deliveries plunged 23.7% last quarter, primarily due to the mid-2018 end of production of the Ford Focus and the early 2019 end of production of the Ford Taurus. Sales of those two models combined fell by more than 43,000 units compared to the second quarter of 2018. Management noted that Ford's sales increased 3% year over year excluding those models.
While GM achieved a double-digit increase in crossover and SUV sales last quarter, Ford posted an 8.6% decline in deliveries for those segments. However, this isn't really cause for concern. Ford is introducing all-new versions of the Escape and Explorer -- its two most popular crossover models -- in the second half of 2019. Lower sales of the outgoing models accounted for more than 100% of the drop in Ford's crossover/SUV sales last quarter. However, the fresher EcoSport and Expedition models posted strong sales gains. This bodes well for a rebound in sales of the Escape and Explorer over the next few quarters.
Meanwhile, Ford continued its dominance in the truck market during the second quarter. The automaker's F-Series trucks stayed strong, with a 1.3% decline in deliveries, and deliveries of the recently revived Ford Ranger midsize truck reached 20,880, up from 9,421 in the first quarter (and none last year). Sales of trucks and vans combined rose 7.5% for the quarter.
The key to success: Fresh products in the right segments
GM owes its solid sales results last quarter to having rolled out all-new versions of several key crossover models for the 2018 and 2019 model years. This allowed it to overcome the natural decline in its car sales related to certain models being phased out, as well as the temporary dip in Chevy Silverado sales due to supply constraints.
Ford also achieved strong growth for the crossover and SUV models that it has updated recently, and the Ranger is off to a good start in its return to the U.S. market. But its overall results were weaker, due to a drop in deliveries of the Escape and Explorer (particularly the latter).
The all-new 2020 Ford Explorer is already starting to arrive on dealer lots. The 2020 Escape will follow later this year. As a result, Ford will have the freshest crossover and SUV portfolio in the industry by year-end. That should allow Ford to return to sales growth in the U.S. next year, if not sooner -- without relying on selling lots of low-margin cars.