Ford's Sales to Rental-Car Fleets Jumped: Time to Worry?

By Markets Fool.com

The new-for-2016 Ford Edge has been a hit for the Blue Oval. Sales jumped again in February. Image source: Ford Motor Company.

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Ford Motor Company said on Tuesday that its U.S. sales increased 20% in February, on a big jump in sales of the Blue Oval's well-regarded SUVs -- and on a surprising increase in sales to rental-car fleets.

SUVs, SUVs, and more SUVs
Car-buyers all over the world are turning toward the new generation of car-based "crossover" SUVs, and Ford's entries continue to be among the cream of the mass-market crop.

All of the Blue Oval's SUVs posted gains, from the compact Escape (up 14%) to the new midsize Edge (up 91%) and the bigger Explorer (up 18%), through the full-size truck-based Expedition (up 22%). Even the quirky Flex, a station-wagon-shaped sibling of the Explorer that has struggled to find a following, managed a big 77% year-over-year increase last month.

It was a similar story at Ford's luxury brand, Lincoln, where Ford is making a long-term effort to remake the brand as more than an airport-limo provider. Overall Lincoln sales are still small, but they're growing thanks in large part to -- again -- SUVs.

The Edge's upscale sibling, the all-new 2016 Lincoln MKX, is also selling briskly. Image source: Ford Motor Company.

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Sales of Lincoln's SUVs as a group rose 41% in February, giving the old brand its best month for SUV sales in 15 years. The big driver was the new-for-2016 MKX, a plusher and well-regarded sibling of the new Ford Edge. MKX sales were up 109%, while sales of the compact MKC rose 12% and the big Navigator was up 11%.

Commercial vans continue to shine
Ford's commercial-fleet sales continue to be strong as well. Sales of the popular Transit commercial van were up 70%, and the smaller Transit Connect gained 9%. Overall, Ford's sales of commercial vans were up 32% over last year, giving the company its best month for commercial vans since 1979.

Commercial-fleet sales made up 12% of Ford's overall U.S. sales in February. That's roughly in line with Ford's year-ago results.

And the F-Series?
February sales of Ford's full-size pickups totaled 60,697 vehicles, up 10% from a year ago. That's not exceptional, but it's a solid result that looks a bit better when we consider this: Sales of the F-Series' biggest-selling rival,General Motors' Chevrolet Silverado, weredown 5% last month.

Better news: Ford U.S. sales chief Mark LaNeve said that average transaction prices (ATPs) for the F-Series were up about $1,800 from a year ago, as buyers opted for more option-rich models. That's good news for Ford's bottom line: Higher ATPs almost always translate into fatter profit margins.

Ford's sedan sales were good*
U.S. sales of Ford-brand cars as a group rose 19% in February. Sales of the overhauled-for-2016 compact Focus (up 33%) and big Taurus (up 42%) were the stars of the group. Sales of the high-volume midsize Fusion sedan were up 12%.

Sales of the revamped Focus jumped 33% in February. Image source: Ford Motor Company.

But there's a big asterisk on those results: Ford's sales to rental-car fleets also jumped in a big way in February, to 19% of Ford's overall sales total from just 12% a year ago. LaNeve said the big jump was due to the timing of some deliveries, which will be much earlier in 2016 than in 2015. He said that Ford's deliveries to rental-car fleets will be high through the first half of the year and will taper off later on. For the full year, LaNeve said, Ford's sales to rental-car fleets should be "in the same range" as in 2015.

That's a concern, because sales to rental-car fleets generally carry low profit margins. Ford has in recent years cut back significantly on its rental-fleet sales, choosing to emphasize more profitable retail sales instead.

If LaNeve's explanation pans out, if it's just a timing fluke and not a sustained increase, it's no big deal. We'll watch it closely.

The upshot for Ford shareholders
Ford is selling a lot of its most profitable products, namely well-optioned SUVs and trucks. Sedan sales were stronger than expected, but that might have been related to its jump in deliveries to rental-car fleets.

Two-thirds of the way through the first quarter, all signs continue to suggest that Ford's profits (and profit margin) in North America will be strong once again.

The article Ford's Sales to Rental-Car Fleets Jumped: Time to Worry? originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends 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.