Ford (NYSE:F) said on Thursday that its July U.S. sales were up 11% over last year, below analyst estimates – but a drop in sales to daily rental fleets may have been responsible for the gap.
Ford said that its retail sales were up 19%, for the company's best July since 2005 – a strong result driven by Ford's newfound strength in fuel-efficient cars, as well as an industry-wide boom in demand for full-sized pickups.
Hot models in short supply in some regions
Ford executives are especially pleased with the company's much-improved performance in what they call "coastal markets", places like Los Angeles and New York where buyers have tended to favor import brands in recent years.
Ford U.S. sales chief Ken Czubay gave reporters a bunch of statistics to emphasize these points in a briefing on Thursday, noting (for instance) that sales of Ford's subcompact Fiesta were up 79% in San Francisco, that Fusion Hybrids are selling very quickly after arriving on dealer lots, and that demand for the Lincoln MKZ hybrid has greatly exceeded Ford's expectations.
But as strong as Ford's retail sales gains were, it's possible that they could have been even stronger. Inventories of some of Ford's hottest models have been tight, limiting supplies at many dealers. Edmunds.com analyst Michelle Krebs says that Ford's Fusion spends less time on dealer lots before being sold – an average of 29 days – than any of its competitors, and the hybrid versions are turning over even faster.
Ford is making some changes to increase production of the Escape and Fusion – it's actually adding a whole new production line to make Fusions that's expected to start running in several weeks – that should help increase inventories later in the year.
But executives noted on Thursday that inventories of the Fusion would remain tight for another month or two, especially in the western and southeastern U.S. Czubay also acknowledged that supplies of some versions of the Focus and Explorer were getting a little thin, and hinted that production increases might be in the works for those models as well.
Good pickup sales, but GM did (a lot) better
Meanwhile, sales of Ford's F-Series pickups were strong, up 22.6% over year-ago numbers to just over 60,000 trucks sold in July. That's a good result – but sales of General Motors' (NYSE:GM) Chevy Silverado and GMC Sierra were together up 44% for the month. Put another way, GM, which is selling a mix of 2013 and all-new 2014 models at the moment, gained market share on Ford in this critical segment.
Is that a concern? Not necessarily – GM's all-new pickups have been moving very quickly, and sales of remaining inventories of the old models have remained brisk. But it's something to watch: GM's all-new pickups have been getting great reviews, while Ford's F-Series is set to be replaced next year. If Ford has to boost incentives to keep sales of the current F-Series strong, that will dent the company's profits.
The upshot: a good month, but concerns on the horizon
It's worth noting that Ford's sales to rental-car fleets – traditionally its least-profitable customers – were down sharply in July versus year-ago levels. It's possible that Ford is diverting limited inventories of hot models like the Fusion and Escape to retail channels in an effort to maximize profits; if so, that's a good move.
But it raises a concern: If more of Ford's North American factories are at or near their peak output, how will Ford raise production to maintain its market position as the overall U.S. vehicle market continues to grow? Will it be able to juggle production to meet demand, or will more big investments in new production lines be needed? We'll find out in coming months.
Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.