Ford Sales Come Roaring Back in February -- With Help From GM

By Markets Fool.com

For more than a year, General Motors has been steadily expanding its market share lead over key rival Ford Motor in the United States. GM has benefited from having popular products in growing market segments like large SUVs, subcompact SUVs, and mid-size trucks -- three segments where Ford doesn't compete today.

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Ford lost market share to GM during 2015. Image source: The Motley Fool.

However, Ford may finally be getting back on track. The No. 2 U.S. automaker posted strong sales growth in its home market last month.

Sales growth accelerates in February
In total, Ford's U.S. deliveries increased 20% year over year during February. The strength was broad-based, with double-digit growth across cars, trucks, and SUVs/crossovers at both the Ford and Lincoln brands.

Crossovers like the Ford Edge posted strong growth last month. Image source: The Motley Fool.

Not surprisingly, given consumers' increasing preference for roomier vehicles, Ford's lineup of SUVs and crossovers posted the fastest growth last month, with sales up 28% year over year. Deliveries of the popular Escape and Explorer product lines each exceeded 20,000 units.

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However, the Ford Edge -- a mid-size crossover -- posted the strongest growth, with sales up 91% year over year to 12,455 units. Last spring, Ford began selling a completely redesigned Edge, which has received very positive reviews. The new Edge seems to be hitting its stride just as Ford enters the busy spring selling season.

Rental sales jump again
Ford's 20% sales growth in the U.S. last month stands in stark contrast to a slight decline at General Motors. However, digging deeper into the numbers, it appears that the difference is due to a major divergence in strategy.

General Motors has been steadily reducing its sales to daily rental companies since last year. The goal is to improve the resale value of its products. Since daily rental companies only keep cars for about a year, on average, vehicles sold to the rental industry quickly end up on the used car auction block, driving down used car prices, which has a side effect of hurting new car sales.

In February, GM slashed its daily rental deliveries by 39% year over year, or roughly 16,500 units. This was the second straight month with a big year-over-year decline. By contrast, GM's retail sales rose 7% last month.

GM posted solid retail sales growth last month despite a dip in total sales. Image source: The Motley Fool.

Of course, rental car companies still need to get vehicles somewhere, and they've been turning to Ford. Ford increased its sales to the daily rental industry in January, and daily rental sales ticked up again in February. A stunning 19% of Ford's U.S. sales last month went to the daily rental industry, up from 12% a year earlier.

Meanwhile, Ford's retail sales grew 11% year over year in February. It's still a strong result, but not as impressive as the overall 20% increase that Ford reported.

Which strategy will produce better results?
Thus, the underlying retail sales growth numbers for Ford and GM were quite similar last month, with Ford holding a slight edge. The big difference was that GM sharply reduced its daily rental deliveries, while Ford increased its rental deliveries in equally dramatic fashion.

We won't know which strategy is working better until later this year. First, daily rental sales tend to be significantly less profitable than retail sales. Ford insists that its rental car business is profitable and good for the company, but a higher percentage of rental car deliveries could still drag down its North American profit margin.

Second, the changes in daily rental deliveries were particularly exaggerated in January and February. For the full year, Ford actually expects its daily rental business to be roughly flat year over year. That raises the question of whether it will be able to keep sales growing in the second half of 2016, when daily rental deliveries will probably be declining rather than rising.

To some extent, the diverging rental car strategies at Ford and GM will take even longer to filter through to their financial results. If reducing its rental car sales allows GM to improve its brand positioning, the benefits could continue for years.

The article Ford Sales Come Roaring Back in February -- With Help From GM originally appeared on Fool.com.

Adam Levine-Weinberg owns shares of 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.