Ford (NYSE:F) has numerous advantages over its cross-town rival General Motors (NYSE:GM), including its large finance division that has a loan book roughly four times the size of the loan book of General Motors. This enabled Ford to bring in an additional $1.7 billion in pre-tax profit last year, in addition to its automotive profits. Ford also brings in North American margins that consistently exceed 10%, while General Motors' goal is to reach that level by mid-decade.
One thing, however, that Ford fails to do as well as its rival is compete in the luxury segment. Good news for investors: Bloomberg reported information from an interview that Ford's Lincoln sales are up 30% in October. After digging into it, that's not as good as it sounds. Here are the details, and why it matters.
What's at stake
Ford desperately needs to revive its all-but-dead luxury brand for a simple reason -- its vehicles are gaining popularity under its main Ford brand. But when consumers age and increase their purchasing power, they often have to leave the Ford lot to find a desirable luxury vehicle. That's a problem, and Ford knows it.
Now that Ford has righted the ship in its overall business, it has the ability to pour money into its Lincoln brand to attempt a similar turnaround. It hit speed bumps early in January, as supplier issues caused a shortage of MKZ supply, and vehicles were months late getting into dealerships, which caused some customers to cancel orders. Indeed, sales began 2013 at a slow pace -- a big problem for Lincoln's flagship sedan, and the first of four vehicle launches under its turnaround plan.
October sales up, big
Months later, however, investors are seeing steady progress in Lincoln sales, but keep awaiting a big step forward that hasn't yet materialized. In a phone interview with Bloomberg, Kevin Cour, Lincoln's sales and service operations manager, said Lincoln's brand sales rose about 30% in October. He continued to say that Lincoln's gains were driven by the MKZ, which surged roughly 70% from a year ago.
At first, I was excited about the numbers. This was the huge step Ford investors were waiting for, right? I decided to dig into some numbers, to see just how big of a month that would be -- and I was a little disappointed.
That white line roughly suggests where Lincoln's brand sales hit in October; it turns out that last October was a dismal month for Lincoln sales, and even a mediocre month compares very favorably. A 70% increase in year-over-year MKZ sales would put it at about 2,700 units sold in October -- its lowest monthly total since March of this year. Expect more color on this from Ford and Lincoln management on Friday during its October sales call at 9:30 am EDT.
While it's disappointing, fear not Ford investors... all is not lost. It appears that Lincoln got an early start, and is hoping to strengthen its holiday season with its annual sales event.
"We are very happy that we got engaged in October versus waiting for Wish List," Lincoln's annual holiday sales event, Cour told Bloomberg. "The campaign is now seeded in the market, and as people begin their purchase consideration, Lincoln can be a bigger part of the conversation."
It's hard to believe that, 15 years ago, Lincoln was actually the top-selling U.S. luxury brand, and its Navigator was one of the nation's most popular rides. However, times change and, last year, the Mustang alone outsold the entire Lincoln brand; the Escape alone sold more than three times the entire Lincoln brand.
It's been a rude awakening, but a 30% sales increase in October is still a year-over-year improvement, and baby steps forward are better than steps backward. Ford hopes its momentum will continue, as four new models will be launched in its attempt to resurrect its luxury brand. If the turnaround at the Blue Oval is any indication, we can fully expect Lincoln to make its resurgence sooner rather than later; when that happens, expect Ford's stock price to react positively for investors.
Fool contributor Daniel Miller owns shares of Ford and General Motors. 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.