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Ford's SUVs Set the Stage for Strong Profits

By John Rosevear - Sep 2, 2015 at 7:06PM

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Sales of Ford's profitable SUVs boomed again in August, setting the stage for a very strong third-quarter result for the Blue Oval.

Ford gave its popular Explorer a big update for 2016. The refreshed SUV is selling very quickly. Source: Ford Motor Company.

Ford's (F -2.72%) U.S. sales grew 5% in August, beating estimates and the overall market. That was partly due to the resurgence of Ford's F-Series pickup line now that Ford's dealers -- finally -- have strong inventories of the new F-150.

But Ford is also selling a whole lot of SUVs right now and that success is setting the Blue Oval up for a strong third quarter profit.

New (and not so new) Ford SUVs are selling very fast
An all-new (and much-improved) version of Ford's midsize Edge started rolling out earlier this year and sales have been extremely brisk: up over 35% in August. 

One measure of a new model's sales pace is "days to turn," the average number of days it takes a vehicle to sell after arriving at a dealership. Anything under 30 days means that demand is strong. 

The Edge "turned" at 20 days in August. "If we had more, we'd sell more," U.S. sales chief Mark LaNeve said in a conference call on Tuesday.

The 2015 Ford Edge is all-new. Sales have been very strong. Source: Ford Motor Company.

That's also true of the Edge's larger and smaller siblings. The bigger Explorer isn't all-new like the Edge, but it has been given a significant update for the 2016 model year. Explorer sales were up 22% last month and the big crossover is "turning" in just 16 days. 

Meanwhile, sales of the smaller Escape were actually down very slightly from a year ago. But as LaNeve pointed out to reporters on Tuesday, last year's result was a record -- and the Escape fell just 126 sales shy of matching it this time around.  That's pretty impressive for a model that is well along in its life cycle. (Ford is expected to update the Escape next year.)  

Escape sales are unlikely to grow much from here. As with the Edge and Explorer, the factory that makes the Escape is already running at full speed -- there's no easy way for Ford to increase supply. 

But LaNeve is convinced that Ford's dealers could sell more of all three SUVs if only Ford could make more.

Meanwhile, Ford's sedans are in a sales slump
Not all of Ford's models are selling as well as the SUVs. Sales of sedans are slumping across the industry and Ford's are no exception. Fusion sales fell 4% last month and sales of the compact Focus were down a sobering 26%.

It's not that Ford's sedans are bad products -- they aren't -- it's that more and more buyers are choosing SUVs instead. The newest "crossover" SUVs (like the Edge, Explorer, and Escape) offer most of the traditional advantages of SUVs, but they drive more like a car (or at least a minivan) than the truck-based SUVs of old. 

They also get much better fuel economy than their truck-based forebears, but low gas prices are probably contributing to many buyers' migrations from sedans to SUVs. 

On balance, the SUV trend is a big win for Ford
For automakers that are heavily dependent on sedan sales in the U.S., this trend has been a big challenge. But while the Focus and Fusion are very important to Ford, it's probably winning more sales than it's losing with its well-regarded new SUVs. And given that SUVs are more profitable than their sedan counterparts, generally speaking, Ford is almost certainly netting more profits per sale than it would have otherwise.

That has already showed up on Ford's bottom line. Strong SUV sales helped power a great profit for Ford in the second quarter. Those strong sales have continued as we've moved through the third quarter and that looks likely to set Ford up for another great result when it reports earnings next month.

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