Shares of Ford Motor (F +0.09%) sank earlier this month after the company reported a big decline in domestic vehicle deliveries for the third quarter. Investors seem to be worried that the No. 2 U.S. automaker's transition away from making cars in favor of crossovers, SUVs, and trucks will lead to permanent market-share losses.
However, the pain could end soon for Ford shareholders. Indeed, the company is well-positioned for a return to growth in vehicle deliveries in the fourth quarter, and the outlook for 2020 is solid, too.
Ford's sales declines have been accelerating
In the first quarter of 2019, Ford posted a modest 1.6% decline in U.S. vehicle deliveries. In the second quarter, domestic deliveries fell 4.1% year over year. The rate of decline accelerated even further in the third quarter, with sales down 4.9% in the U.S. This stood in sharp contrast to the sales rebound that General Motors (GM +1.23%) reported last quarter.
Once again, the drop in Ford's deliveries in Q3 was driven entirely by plunging sales of sedans and hatchbacks. Ford and its dealers delivered 77,231 cars in the U.S. during the period -- down 29.5% year over year. The 32,282-unit decline in car sales more than accounted for the 29,693-unit decrease in Ford's total domestic deliveries last quarter.
Deliveries of the Focus and C-MAX fell to zero after being discontinued last year. Ford also reported sharp declines in the number of deliveries for the Taurus and Police Interceptor Sedan models, for which production ended earlier this year.
The discontinuation of models like the Focus has weighed on Ford's domestic sales. Image source: Ford Motor Company.
The more surprising factor behind Ford's accelerating sales declines this year has been a reversal in sales trends for its crossovers and SUVs. Sales of those models rose 5% in Q1 but fell 8.6% in Q2 and plunged 10.5% last quarter. In Q3, domestic deliveries of the Explorer and its Police Interceptor Utility spinoff plunged by 50% combined. Additionally, domestic sales of the Escape -- Ford's best-selling crossover model -- declined by 7.2% last quarter.
The sales declines for these high-volume models more than offset a strong 8.8% increase in deliveries of Ford trucks and vans, as well as double-digit growth for the Lincoln crossover/SUV lineup and several other Ford crossover and SUV models.
Explorer and Escape sales should snap back this quarter
There's an innocuous explanation for Ford's Q3 sales decline: The automaker was in the midst of switching over to new versions of the Escape, Explorer, and Police Interceptor Utility. That led to inventory shortages, particularly for the latter two models. Inventory is finally returning to normal levels, and there should be strong demand for the new models, as the prior-generation Escape and Explorer desperately needed updating.
Assuming domestic sales of the Escape, Explorer, and Police Interceptor Utility had been flat year over year last quarter -- and holding everything else constant -- Ford's total U.S. deliveries would have increased 1.5%. This highlights the potential upside from removing the constraints on those models' sales.
The ongoing UAW strike at General Motors, which has already disrupted production for nearly a month, could also boost Ford's sales in the fourth quarter. While GM had ample inventory when the strike began, its dealers are likely to face severe shortages of many models over the next month or so.
Considering that the General is the largest U.S. automaker, this will put lots of potential sales up for grabs. Ford's strong truck franchise and its refreshed lineup of crossovers and SUVs should enable it to capture a meaningful share of any sales lost by General Motors.
The outlook for 2020 is promising, too
Looking ahead to next year, Ford should have plentiful inventory of all its new crossover models. That could set the stage for strong sales growth for the Escape, Explorer, and Police Interceptor Utility. Combined domestic deliveries of the three models fell by more than 45,000 units last year and plunged by more than 77,000 units in the first nine months of 2019. Just getting back to 2017 sales levels could potentially offset the likely decline in car sales next year.
The Lincoln luxury brand is also on track for strong growth in 2020. Lincoln began selling two brand new crossover models in the past few months, giving it a portfolio of four fresh crossover and SUV models. Those new models helped the brand post an 11.7% increase in domestic deliveries last quarter. As inventory levels improve over the next couple of quarters, the brand's growth could accelerate.
Finally, the Blue Oval will expand its lineup of crossovers and SUVs in the second half of 2020 with the launch of the Ford Bronco off-road SUV and a smaller off-road sibling. These new off-road SUVs will also help Ford make up for dramatically lower car sales.
It was inevitable that Ford's 2018 decision to discontinue most of its car models in North America would lead to short-term sales volatility, particularly because the automaker was still early in the process of updating its crossover and SUV lineup at the time. However, with Ford now having the freshest portfolio of crossovers and SUVs in the industry, the company is poised for an imminent return to sales growth.
