The importance of the day when March's sales are reported in the automotive industry shouldn't be overlooked. January and February sales were dampened by harsh winter weather that limited dealership traffic. If March hadn't provided pent-up demand resulting in incremental increases in sales, then automakers would likely have experienced weaker than anticipated first-quarter profits. Fortunately that wasn't the case, and industry sales surged 6% to a seasonally adjusted annual rate of 16.4 million. That exceeded both estimates and last year's comparable 15.3 million mark, and was one of the best monthly rates since the recent recession. Ford (NYSE:F) posted the smallest sales increase of Detroit's Big Three automakers -- 3% compared to GM's 4% and Chrysler's 13%. Here are three quick and important takeaways from Ford's sales data.
Speaking of potential first-quarter earnings, it's no secret that Ford's F-Series trucks drive the majority of company profits. It's the company's best seller by volume, along with being its most profitable model, so investors can breathe a sigh of relief that the truck continues to sell very well despite being the oldest design among Detroit auto competitors.
Ford considers any month when F-Series sales top 50,000 a solid month. That makes topping 70,000 in March a phenomenal month, and it's something that has only happened four times since the recession. That's great news for Ford's first-quarter profits -- sales of America's best-selling truck were up 5.1% in March, nearly reaching 71,000 units.
One reason that Ford's stock fails to reach the same forward P/E ratio levels that its Japanese counterparts trade at is because the company lacks a very successful global luxury brand. Fortunately for Ford investors, the folks at the Blue Oval have successfully turned around the Ford brand itself, and management intends to map Ford's turnaround success story onto its Lincoln brand. While the Lincoln turnaround is still in its early stages, the effort looks to have gained traction through March.
Behind Lincoln's strengthening sales is the recent redesign of the MKZ sedan, sales of which were up 72% in March compared to the same time last year, but the comparison is a bit skewed due to a lack of inventory last year. Sales of the new MKZ have helped send Lincoln brand sales surging 31% in March, 36% for the first quarter, and 27% over the last six months.
Catch me if you can
Toyota's Camry has been the best-selling car in the U.S. for the last 12 years. That's pretty impressive when you consider that the midsize segment is the largest in the U.S. market and arguably the most competitive among all major automakers.
"There's a tremendous amount of competition in this segment," said Erich Merkle, Ford's sales analyst, according to Bloomberg. "This is really hand-to-hand combat. There's no other way to describe it. This is bloody, it's in the trenches."
Granted, Ford increased its incentives by 32% on the Fusion, but I'd argue it was money well spent. Consider that in the most competitive auto segment, the Fusion and its aggressive styling reach an average transaction price of $23,500, which is above the Camry's and near the very top of this ultracompetitive category, according to Merkle. It should also be noted that even with the significant increase in incentives, the price still totals less than the average discount price in the midsized car segment. I nearly forgot to mention that the Fusion set an all-time monthly sales record in March of nearly 33,000 vehicles. Check out the narrowing gap between the leading Camry and the Fusion:
What an investor can surmise about the Fusion's March sales is really also a good summary of Ford's entire approach. While Ford's 3% sales increase fell short of both its Detroit rivals', it continues to post better profitability in large part because of its pricing power on important vehicles. Let's also not overlook that new designs of the F-150 and Mustang -- essentially the heart and soul of Ford's lineup -- hit dealerships later this year, which should increase foot traffic at dealerships. Also hitting dealerships this year is Lincoln's MKC which, if it continues this trend, should send Ford's luxury brand sales to a new level.