For more than three decades, Ford Motor Company's (NYSE:F) F-Series has been the top-selling vehicle nameplate in the U.S. F-Series trucks also carry very high margins, producing as much as 90% of Ford's global earnings in recent years.
However, F-Series sales declined last year as Ford began retooling its factories for the radically redesigned 2015 Ford F-150. This was one of the primary causes of Ford's decline in profit last year.
Fortunately for investors, F-Series sales returned to strong growth last month. As retail availability of the 2015 Ford F-150 improves, sales should continue to trend higher -- but it won't be a straight-line improvement.
Navigating the model transition
F-Series sales in the U.S. fell 1.3% in 2014. The problem was supply, not demand. Ford estimated that it lost 90,000 units of F-150 production last year, as it had to take 13 weeks of plant downtime to retool for production of the 2015 Ford F-150.
This new version of Ford's best-selling product is hundreds of pounds lighter than older versions thanks to Ford's use of aluminum (rather than steel) in the body. This improves its towing power and fuel economy.
Not surprisingly, early demand for the 2015 Ford F-150 has been even stronger than for the 2014 model. It averaged just 12 days on dealer lots in January -- whereas it's typical for pickups to sit on dealer lots for about three months. Ford isn't likely to reach a complete supply-demand balance until the summer.
F-Series sales jump
In January, Ford sold a total of 54,370 F-Series trucks, up 16.8% year over year. The F-150 makes up the majority of the F-Series sales mix. However, dealers are still mainly selling 2014 models at this point. 2015 models only accounted for 18% of F-150 retail sales, even though they were being snapped up as soon as they arrived on dealer lots.
The strong F-Series sales performance allowed Ford to pull back ahead of General Motors (NYSE:GM) in the full-size truck market last month. Combined sales of GM's Chevy Silverado and GMC Sierra rose more than 20% year over year, but still totaled only 48,727 units: more than 10% behind the F-Series total. By contrast, GM has won the full-size truck sales battle several times in recent months.
Expect bumps in the road
The strong demand seen so far for the 2015 Ford F-150 bodes well for its sales later this year. However, in the short term, supply may become an even bigger constraint on sales than it was in January.
While Ford's Dearborn Truck Plant is now operating at full capacity to produce the 2015 Ford F-150, its Kansas City Assembly Plant is in the midst of its retooling process. This means Ford is continuing to lose F-150 production.
Ford still posted strong F-Series sales growth in January because it is a seasonally weak month, there was an extra selling day in January 2015, and severe winter storms had hurt sales in January 2014. As spring approaches, pickup demand increases, and Ford will face tougher comparisons.
For example, Ford sold 70,940 F-Series trucks in March 2014, compared to just 46,536 in January of that year. Additionally, Ford dealers are likely to have cleared out most of their 2014 models by March.
Thus, as comparisons get tougher this spring, inventory constraints will become a bigger impediment to sales growth. Strong demand for the 2015 Ford F-150 will only result in sustained sales gains when supply catches up with demand this summer.
In the meantime, Ford's competitors -- particularly GM -- have a window of opportunity to boost their sales of highly profitable pickups. The fall in gas prices is stimulating demand for larger vehicles, including full-size trucks. With Ford's truck sales constrained by availability for the next several months, GM may be able to capture much of the upside in truck demand.