Pop quiz: If you were asked what impact an all-new Fiesta design would have for Ford's (NYSE:F) sales in the U.K. and profitability in Europe, what would you say?
Most people probably wouldn't have much of a clue. Or, if you were to take a stab in the dark, you might say say "probably not much of an impact." After all, the Fiesta isn't a hot commodity in the United States: Year-to-date sales were down 8% through June, compared to last year, with the Fiesta only representing a meager 8% of Ford's total car sales and not even 3% of the brand's total sales.
However, the story is much different in Europe. Often investors see data coming from Europe, but don't fully understand what it means. By the time you finish reading this article, if someone were to ask you what an all-new Fiesta would do for Ford in Europe, you'd be able to drop some real knowledge.
Starting from the top
Admittedly, Europe can be a confusing region for investors following the automotive industry. Sales reports throw around terminology like "Euro 20," "Total Euro 22," "key European markets," and "Total Euro 50," as if the average investor knows what that means and how it can alter sales percentages and perspective. So let's clear this up.
Euro 20 is a collection of markets: Austria, Belgium, Britain, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Spain, Romania, Sweden and Switzerland.
Total Euro 22 refers to all of the above markets with the addition of Russia and Turkey. And, you guessed it, Total Euro 50 adds another 28 markets, which I won't bother listing -- you'll know why shortly.
The industry sold 7,626,100 automobiles in the Euro 20 markets this year through June, while sales in the Euro 22 reached 9,192,700. Total Euro 50, with those 28 additional markets, hardly moved the needle in sales from the Euro 22's level, to 9,518,300, and doesn't add enough value to bother typing out the market names.
The difference in the markets can be important to be certain you're comparing apples to apples in market share or other data.
Now, with that dullness out of the way, here's why an all-new Fiesta would be far more important for Ford in Europe than many realize.
Key European markets
When zooming in on Ford's performance in the Euro 20 markets, you can quickly see the bulk of sales are generated by five countries, which the automaker calls its key European markets.
Topping the list of importance is Britain, where Ford as of June had a 14.5% market share and generated more than 44% of its total sales from its key European markets. Britain and Germany combined generated 70% of sales from those five markets -- their importance is huge.
Now that you better understand which markets are crucial, let's look at vehicle sales to understand if the Fiesta makes any difference. Hint: it does, a lot.
The Fiesta through June accounted for 28% of Ford's sales in the Euro 20 this year. Add the Focus into the mix and the two vehicles generated nearly half of Ford's sales in Euro 20. In fact, the Fiesta and Focus sold more in the region than Ford's next nine best-selling vehicles combined.
Freshness matters, too
Through June, more than 52% of Ford's sales were of new or significantly refreshed vehicles. Put simply, new vehicles sell better and are more profitable for automakers. Declining sales of older models could definitely diminish overall sales results, as well as profitability in Europe; this is especially true when it comes to important vehicles like the Fiesta and Focus
On the flip side, all-new designs or refreshed versions of these key cars could favorably impact sales and profitability. It just so happens that several new Ford models are going to hit Europe in the second half of 2014, one being the Focus, which could mean more impressive sales figures across the pond for the automaker.
Now, the next time someone asks you how important an all-new Fiesta design is for Ford's sales in Britain, as well as the automaker's profitability in Europe, you can give them an earful.