Analysts' takes on U.S. auto sales in October are starting to come in and, so far, it's looking like ... more of the same for Ford (F 1.19%).
That's good news and bad news. On the one hand, the Blue Oval's sales growth in the U.S. -- far and away its most critical, and profitable, market -- has been just so-so in recent months, often trailing the overall market's growth. Early estimates are suggesting that October's results are likely to follow that pattern.
On the other hand, there are good reasons to think that Ford is actually doing well under the circumstances. That said, it's starting to feel like Ford should be taking action.
Ford's growth looks OK, but...
Every month about this time, the auto-market analysts at TrueCar.com release their best guesses as to who's up and who's down in the current month's automotive sales race. Using information from industry sources (mostly dealers), these analysts look at sales increases by automaker and by brand, as well as other trends, including incentives offered by each automaker.
TrueCar sees the overall market (including fleet sales) increasing 11.5% from year-ago totals. But, once again, Ford's increase is expected to trail the overall market's, coming in at just 5.3%.
That looks like bad news, especially when you compare it with the gains expected for Toyota (TM 2.17%) and Volkswagen (OTC: VLKAY), both of which are over 20%. Even General Motors (GM 0.61%), which is still waiting on a slew of new products, is expected to be up more than Ford, at 7.3%.
Estimates from other analysts, including those at Kelley Blue Book and Edmunds, differ in details, but suggest the same trend: Ford will gain ground over year-ago numbers, but less so than most of its rivals.
What's the deal?
Stop me if you've heard this story before
There are a couple of possible reasons why Ford's sales gains are trailing its competition's. The biggest is simply one of production capacity: Ford is already selling all it can make of some hot models. Several of Ford's plants are running around the clock, and increasing production further would require big investments in additional assembly lines – investments that Ford (and critically, its key suppliers) has so far been reluctant to make, given the shaky state of the U.S. economic recovery.
Ford hasn't stood still, though. TrueCar estimates that Ford's per-vehicle spending on incentives – cash-back offers, cheap financing, and similar discounts – fell again in October, and will come in 13.7% lower than year-ago totals. That's a big drop, biggest among the major automakers and, once again, puts Ford's spending well below that of its Detroit rivals.
The good news: Ford's making money
Ford CEO Alan Mulally talks often about the company's margins, and about "matching production capacity to real demand," in order to keep costs down and Ford's prices strong. By designing top-notch products, and making just enough of them to meet demand, Ford is able to ask premium prices relative to some competitors – and with supplies constrained a bit, has been able to effectively increase those prices somewhat by reducing incentives.
That's the essence of Mulally's "One Ford" strategy and, even with supplies constrained, it has apparently been good for Ford's bottom line. In a call with analysts and media on Thursday, Mulally and CFO Bob Shanks said that Ford's third-quarter earnings – due to be released next week – would be higher than last quarter's, even though Ford is having a rough time in Europe. That suggests that profits are likely to be up in Ford's North American division, and that suggests that Ford's work on pricing is paying off.
But speaking as a Ford shareholder, I admit that I'm starting to get a little concerned at the way this story seems to repeat itself, month after month.
When will Ford invest in added production?
Ford management might be content to make the most of their existing assembly lines. But, at some point, the company will be left behind. Already, Ford's U.S. market share is slowly shrinking, as rivals' sales gains exceed Ford's month after month. Yet, Ford has a line of fresh products that, for the most part, has received great critical acclaim.
I realize that Mulally and his team are being very conservative with investments in additional production, and I acknowledge that thisis a prudent approach; but, at some point, Ford should be winning more sales on the strength of its great cars and trucks.
That means probably investing in the capacity to build more of those great cars and trucks. I'm not expecting big sales gains for the Blue Oval in the U.S. until that happens.
