Ford Motor Company (NYSE:F) said on Friday that its U.S. sales rose 8% in March, the Blue Oval's best March result in the U.S. since 2006.
That result caps a first quarter in which Ford's sales in its home country rose 9%, a strong showing in what many analysts expected to be a plateauing market.
But there was a big caveat to that: Ford's retail sales actually fell a bit last month, while its fleet sales surged.
Fleet sales jumped: Why that's not necessarily bad news
Ford's U.S. sales chief, Mark LaNeve, said in a conference call on Friday morning that the Blue Oval's overall retail sales fell 5% last month, while its fleet sales rose a whopping 39%. Contrast with rival General Motors (NYSE:GM), which is making a big effort to cut back on fleet sales -- particularly to rental-car fleets.
A jump in fleet sales is not necessarily bad news for Ford, in part because "fleet sales" come in a few different flavors. Sales to commercial and government fleets are considered good, profitable business, and Ford and GM fight hard for it. On that front, the news was good: Ford's sales of trucks and vans to commercial-fleet and government buyers were up significantly. Sales of Ford's Transit vans, the vast majority of which go to fleet customers, jumped almost 53% last month.
Sales of pickups to those customers were probably also up significantly year-over-year. A year ago, Ford was prioritizing tight supplies of the then-new F-150 for retail sales. With truck inventories now flush, Ford is taking care of its commercial customers.
But Ford's sales to rental-car fleets were also up significantly, accounting for 17% of Ford's total sales during the month (versus 12% a year ago). As investors, we worry about those: Too many sales to rental fleets can depress margins (because the sales are discounted) and hurt leasing (because the glut of used rental-cars depresses used-car prices, forcing the company to charge more for new-car leases).
LaNeve said that jump in rental-fleet sales year over year was due to the timing of some large deliveries, which fell earlier in the year than they did last year. For the full year, rental-car fleet sales accounted for 11% of Ford's total U.S. sales in 2015; LaNeve expects Ford's full-year 2016 result to be roughly the same.
Here's the takeaway: Too many fleet sales can hurt profit margins. But offsetting that are signs that Ford is having success with three of its most profitable product groups: Pickups, SUVs, and luxury vehicles.
SUVs continue to be big for Ford (and the industry)
It's no secret that SUV sales are white-hot, and have been for a while now. A combination of better, car-based crossover designs and low gas prices is drawing more and more buyers who want to trade in sedans for the new generation of SUVs.
Not surprisingly, Ford is making a lot of hay on that trend. U.S. sales of Ford-brand SUVs as a group rose 13% last month, and are up 15% for the year to date. The group includes Ford's Escape, Edge, Explorer, and the big truck-based Expedition -- all very profitable products.
The star of the group is the latest version of the Edge. The mid-sized "two-row" Edge was all-new last year, and buyers like the changes: Edge sales jumped 49% last month. Better yet, LaNeve said that the Edge's average transaction prices were up $3,800 from a year ago. That suggests that buyers are choosing models with more options, boosting profit margins.
Ford's vaunted pickups are holding their own
Sales of Ford's F-Series full-size pickup line, which includes the F-150 and its Super Duty siblings, were up 9% last month to 73,884, a 10-year record for March. For the quarter, F-Series sales were up 5%. There's a good chance that much of that growth came from commercial-fleet sales, but those are still good, profitable sales.
The F-Series is Ford's (and America's) biggest seller in the U.S. by far, and it's probably the single most important driver of Ford's profits in most quarters. The overall growth numbers look like good news for Ford's bottom line as we look toward its first-quarter earnings report later this month, but we'll have to wait to hear how the shift to more commercial-vehicle sales might have affected profit margins.
Lincoln's SUVs are selling well, too
Overall sales at Ford's luxury brand were up 11.4% last month, and up 16% for the quarter. We like that: Generally speaking, luxury vehicles carry fatter profit margins than their mass-market cousins.
The shining star for the Lincoln brand right now is the all-new Lincoln MKX, a mechanical sibling of the Ford Edge. MKX sales rose nearly 88% last month, and were up 81% in the first quarter. The refreshed version of the big (and hugely profitable) Lincoln Navigator is also showing some growth, with sales up almost 20% last month.
The upshot: On balance, a good quarter
Ford's rental-car sales will bear watching, particularly since rival GM is making a big point of cutting back on that business. (GM's sales to rental-car fleets were down 33% last month.)
But generally speaking, the trends have been favorable ones for the bottom line. Ford did say on Friday that average transaction prices across the Ford-brand portfolio were up "more than $1,600" in March from a year ago, thanks in big part to buyers' ongoing shift to SUVs. If nothing else, that should help Ford deliver strong margins when it reports first-quarter earnings later this month.