What: Ford (NYSE:F) said on Tuesday, Nov. 3, that U.S. sales rose 13% in October on strong sales of pickups, the Fusion and Mustang, and its newest SUVs.
So what: The overall U.S. market for new vehicles had a good month in October, thanks in part to the calendar: October had five Saturdays, and deals for new cars are often closed on Saturdays.
For Ford, it was the company's best October performance since 2004. It was driven by especially strong performance at retail for some of the company's most profitable products. The overall average transaction price (ATP) for Ford-brand vehicles hit $34,600 in October, up a hefty $1,800 from a year ago. Jumps in ATP suggest that buyers are choosing fancier versions of Ford's vehicles. That's a strong positive indicator for profitability in Ford's North America unit.
Good retail sales and strong prices on the F-Series
Retail sales of the F-Series pickup line rose 12%, while overall F-Series sales (including fleet) were up just 3%. Ford's U.S. sales chief, Mark LaNeve, noted in a conference call for analysts and reporters that the F-Series's ATP was $42,500 in October, up $2,300 from a year ago.
That ATP was also up about $100 from September. LaNeve noted that Ford reduced its incentives on the F-Series in October. Its per-vehicle spending on incentives for full-size pickups was below that of its two principal competitors, General Motors (NYSE:GM) and Fiat Chrysler (NYSE:FCAU), LaNeve said. Again, given that the F-Series is Ford's best seller, that's a positive sign for earnings.
New SUVs continue to deliver big profits
As we've seen since the second quarter, Ford is also generating heavy profits on its SUVs. Like both Fiat Chrysler and GM, Ford has seen big jumps in its sales of profitable car-based "crossover" SUVs. Its newest models have done particularly well: An all-new version of the midsize Edge was released earlier this year, and the bigger Explorer SUV was given an overhaul for the 2016 model year.
Edge sales rose 39% in October versus a year ago, with ATP rising an impressive $4,300. Demand is very strong: The new Edge is "turning" in just 22 days. ("Days to turn" is an industry measure of how quickly a vehicle is selling. It measures the days that a model spends on a dealer's lot before being sold, on average. Anything under 30 days typically indicates strong demand, tight supplies, or both.)
The 2016 Explorer may be doing even better. Sales were up 30%. Over 90% of Explorers sold in October were the new 2016 model, and LaNeve said that demand for high-end trims has been very strong. ATP is up $2,800 from a year ago, and the 2016 Explorer is "turning" in a very quick 17 days.
Sales of car models have lagged in the shadow of strong SUV and truck sales this year (and not just at Ford). But LaNeve noted that sales of the new-for-2015 Mustang more than doubled last year's result, while the Fusion (up 3.6% overall) had its best-ever October.
Now what: Ford is launching a "Friends and Family" promotion for November that will give all buyers a fixed, discounted price. Ford plans an aggressive advertising effort for the promotion, but despite concerns from some analysts, LaNeve said that the discount program wouldn't boost Ford's overall level of incentive payouts.
Ford posted a terrific operating profit margin (11.3%) in North America in the third quarter, thanks to the strong demand for and improved profitability of, the new F-150, Edge, and Explorer. Ford's guidance suggested that the fourth quarter's result will be somewhat less impressive. But from all appearances, Ford's U.S. profit machine continued to roll along in October.
John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. 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.
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