Auto-sales numbers come out on Tuesday. Will they show a decline for Ford?
Auto sales are a tricky thing to predict, but that hasn't stopped analysts from trying. Last week, I noted that analysts at TrueCar.com and Edmunds were suggesting that Ford (NYSE: F) might be losing some sales ground while Toyota (NYSE: TM) was showing signs of a surge.
Since then, the crew at Kelley Blue Book has checked in with its own predictions -- which provide some useful context for Tuesday's numbers, and for evaluating auto-sales numbers generally. So will Ford's sales be down? The answer might depend on your perspective.
Why look at any auto sales numbers?
Automakers' monthly sales totals are useful for a few things, and that's why analysts like to try to predict them: For investors, they provide a check-in on the health of individual automakers, on the success of new models or other key offerings, and -- from a different perspective -- on the health of the economy, as a gauge of consumers' willingness to spend on big-ticket items.
What they don't show, though, can be very significant. A high sales total is nice, but not if a big portion of it is made up of low-margin sales to rental-car fleets -- or if the retail sales totals were driven by hefty incentives. Even fleet sales totals can be complicated, as some automakers (like Ford) emphasize higher-profit sales to business and government customers over rental-car sales.
Some automakers have made a decision to reduce incentives spending even if it costs them sales. Ford, for instance, has dropped its incentives spending significantly over the past couple of years. Up to a point, these automakers might actually prefer to have fewer sales if it means boosting the profitability of the sales they do make. That kind of thinking doesn't show up in the sales totals and can be lost in soundbite news reports -- but it's important for investors to keep in mind as they evaluate sales reports.
April's sales reports will bring a few more things to keep in mind.
Why April's comparisons might be particularly complicated
Kelley's predictions for April auto sales aren't far off the ones I looked at last week (and mentioned earlier). In sum, Kelley's analysts see continued strong consumer demand for new cars and trucks, with some gains for Toyota and Nissan (OTC: NSANY.PK), while they expect Ford and General Motors (NYSE: GM) to lose some ground on a year-over-year basis.
But in this month in particular, year-over-year comparisons will come with a bunch of caveats, as Kelley points out. First, this April has three fewer "selling days" (many auto dealers are closed on Sundays and holidays) than April of 2011 had. That means that modest year-over-year declines might not mean much -- and that a look at average daily sales rates might be a more useful indicator of whether an automaker had a "good" month.
Second, this past winter's unusually warm weather may have driven higher sales in February and March and might be costing automakers some sales now. Put another way, consumers who might have otherwise bought a new car or truck in the spring may have made that purchase a bit earlier, because of the warmer weather, skewing the validity of year-over-year monthly comparisons that generally assume similar seasonal factors from year to year.
Comparisons with an unusual year
Last, but not least, the effects of the March 2011 earthquake and tsunami that hit northern Japan will be seen in year-over-year comparisons for the next several months. Toyota and Honda (NYSE: HMC) both saw key suppliers damaged by the disaster, and both lost a significant amount of production over the next several months. Toyota had already lost an estimated 500,000 units of production by this time last year, and the losses -- and corresponding sales declines -- would continue for several months more. Big year-over-year increases for both will need to be taken with several grains of salt.
Both automakers have since bounced back, but as Kelley points out, inventories remain low -- Kelley said that Toyota has a 32-day supply of vehicles on hand, well below the 50-to-60-day range that most automakers consider optimal. That means that Toyota may find it difficult to increase its sales significantly from here, even if there's strong consumer demand.
And what does it mean for Ford?
Now you understand what I meant: Even after we have the actual sales totals for Ford, whether they're "up" or "down" might depend on your perspective. But either way, I'll have a full report for you on Tuesday afternoon -- and reports on the other major automakers as their results come in. Stay tuned.
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