3 Takeaways From Ford Motor Company's May Sales Decline

By Markets Fool.com


Ford's Escape recorded another solid sales month. Image source: Ford Motor Company.

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When all was said and done Wednesday, the automotive industry's sales had quite a few story lines. Fiat Chrysler Automobiles managed to post a meager 1.1% gain in sales, compared to the prior year's May, which extends its streak of year-over-year monthly gains to 74, while General Motors' sales plunged 18%. Somewhere in the middle of those two results was Ford Motor Company , which recorded a 5.9% decline.

In the grand scheme of things, the U.S. auto industry dropped 6.1%, its biggest monthly drop in nearly six years.Let's zoom in on Ford's May sales results, including why they appear weaker than they really are.

Wanted: Context

As is the case with any comparison, the sales figures from May need appropriate context in order for us to understand the year-over-year changes. In this case, automakers' sales figures from last month appear weaker compared to the prior year's May for two reasons.

The first is that there were two fewer selling days last month than in the prior year. Arguably even more important than the two missed selling days was that there were five weekends during last year's May, and only four last month -- vehicles sell in higher volumes on the weekends, and that calendar quirk made last year's May look stronger than it would have otherwise.

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What investors should look at to better gauge the industry's sales is the Seasonally Adjusted Annual Rate (SAAR). For May, the U.S. industry's SAAR reached 17.46 million during May, which is a very healthy pace of sales. That's roughly equal to April's 17.42 million, albeit still slightly lower than last May's 17.71 million. With all of that said, it's important for investors to remember how strong a SAAR of 17 million is: Only twice did the monthly SAAR top 17 million between 2008 and the beginning of 2015.

Fleet sales settle down

There was quite a bit of talk, and some concern, regarding Ford's rise in fleet sales through the first four months of 2016. For those who don't recall the figures, during the first quarter, 36% of Ford's total sales in the U.S. were generated by fleet sales, up significantly from the prior year's 29%. Moreover, that rise was essentially fueled by an increase in daily rental fleet sales, the less desirable of fleet segments. Commercial and government fleet sales are widely recognized as healthier fleet sales.

Ford was adamant that these fleet sales would settle down during the back half of 2016 and end up only slightly higher than 2015 levels. Looking at last month's figures, that explanation is starting to gain traction. Ford's fleet sales last month accounted for 32% of its total sales in the U.S., with 13 percentage points from commercial sales, six percentage points from government, and 13 percentage points from daily rental. That result is closer to the norm, and it helped bring Ford's YTD daily rental sales percentage of total sales from 17% during the first quarter of 2016, down to 15% of total sales through May. Those two percentage points may not seem significant, but it definitely puts Ford's fleet sales back on a historical pace -- and below levels that would raise questions.

Money, money!

Ford's F-150 continues to sell at an accelerated pace. Image source: Ford Motor Company.

Ford's bread-and-butter F-Series sales moved 9% higher compared to the prior year, for a total of 67,412 units sold. Ford's vans also posted their best performance in 38 years, driven by sales of the Transit. Ford's Escape sold nearly 31,000 units last month, and through May, Ford's SUV segment has sold more than 325,000 units in the U.S. market -- a 9% gain and the best-ever start for Ford brand SUVs in company history. On the bright side for investors, slowing sales of passenger cars and accelerating sales of larger vehicles equates to higher transaction prices and profits. That's a story line that has continued to play out over the past year -- and last month.

"With strong demand for pickups, vans and SUVs, Ford brand saw average prices grow almost $1,500 per vehicle in May -- about 50 percent higher than the industry," said Ford Vice President, U.S. Marketing, Sales and Service, Mark LaNevein a press release.

While the industry's May sales figures will appear weaker at first glance, when accounting for fewer selling days and one fewer weekend on the calendar, the industry's sales pace is still very healthy. Further, as sales of passenger cars continue to slide in favor of more profitable trucks, vans, and SUVs, expect Ford's second quarter to provide another very profitable result.

The article 3 Takeaways From Ford Motor Company's May Sales Decline originally appeared on Fool.com.

Daniel Miller 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.