Ford Ekes Out a Sales Gain on Pickups and Fleet Deliveries

By John Rosevear Markets Fool.com

Ford Motor Company (NYSE: F) said on June 1 that its U.S. sales rose 2.2% in May, on an 8.4% jump in deliveries to fleet customers from a year ago. Ford's retail sales fell slightly (0.8%) from a year ago. But Ford's overall sales gain was enough to give it a slim victory over rival General Motors (NYSE: GM) for the month.

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Ford's U.S. sales in May: The raw numbers

Metric May 2017 Change vs. May 2016
Retail sales 158,282 (0.8)%
Fleet sales 82,844 8.4%
Ford-brand sales 230,838 2.1%
-- F-Series pickups 76,027 12.8%
Lincoln-brand sales 10,288 4.9%
Overall sales 241,126 2.2%

Data source: Ford Motor Company.

Ford's new-for-2017 F-Series Super Duty pickups continue to drive strong sales gains and pricing. Image source: Ford Motor Company.

How Ford's result compared with rivals'

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Ford's May sales gain was roughly in line with the 2% increase expected by analysts at Edmunds. But while old archrival GM posted a small year-over-year decline, versus expectations of a gain of almost 6%, several other automakers exceeded Edmunds' expectations in May:

Automaker May 2017 Sales vs. May 2016 Edmunds' estimate
Ford 2.2% 2%
General Motors (1.3)% 5.7%
Fiat Chrysler Automobiles (NYSE: FCAU) (1.0)% (4.8)%
Toyota (NYSE: TM) (0.5)% 0.1%
Honda (NYSE: HMC) 0.9% (1.4)%
Nissan (NASDAQOTH: NSANY) 3% (2.1)%

Data sources: Automakers' sales reports, Edmunds.

Why the misses? It's a tough market to forecast at the moment. The U.S. new-car market is almost certainly past its cyclical peak now. At this point in the cycle, with demand still strong but softening, it's not surprising to see up-and-down results from month to month -- or from automaker to automaker.

The thing to watch is automakers' spending on incentives. So far, Ford has been unwilling to offer deep discounts in search of sales gains. Ford's per-vehicle spending on incentives was roughly flat overall from a year ago in May, and was actually down modestly on the F-Series pickups ($500) and on Ford-brand car models ($300).

That was at odds with larger industry trends. Here's how Edmunds' chief analyst, Jessica Caldwell, summed it up from an industrywide perspective:

While demand for new vehicles is still relatively strong, it's a bit of smoke and mirrors. Dealers and OEMs really pushed the deals over the holiday weekend to prop up their May numbers. Incentives were up sharply, and it seems automakers are putting more cash on the hood to nudge car shoppers to buy versus lease. Finance incentives were up 33 percent year over year in May, compared to a 28 percent rise in lease incentives and an 18 percent lift in cash incentives.

What's working (and isn't) for Ford right now

Ford's U.S. marketing and sales chief, Mark LaNeve, called out some high points during a conference call for analysts and journalists on June 1. Among them:

  • Sales of Ford's most important profit driver, the F-Series line of full-sized pickups, rose 12.8% to 76,027, the line's best May result in 13 years.
  • That jump in F-Series sales was accompanied by a fat increase in average transaction prices: up $3,300 from a year ago, according to J.D. Power data reported by Ford.
  • That gain in F-Series pricing helped boost Ford's overall average transaction price by $2,100 in May, versus a roughly $500 average increase for the industry as a whole.
  • Ford's highly profitable SUVs had a good month, with solid gains for the Edge (up 11%), Explorer (up 21%), and big Expedition (up 14%). Sales of Ford-brand SUVs rose 4.2%; only the compact Escape (down 10%) and the police version of the Explorer (down 2%) lagged.
  • Lincoln sales rose 44.9%, paced by a 17% gain for the Escape's upscale twin, the MKC crossover. Lincoln sold 1,061 examples of its new Continental sedan, more than doubling the year-ago result of its now-departed predecessor, the MKS.
  • Ford's inventories are in very good shape: Including vehicles in transit to dealers, the Blue Oval had 72 days' worth of vehicles in inventory at the end of May, down from 83 days' worth at the end of April.

Not all of the news was positive, however:

  • Sales of Ford-brand cars continued to slip in May. The group was down 11% from a year ago, with big declines for the small Fiesta (down 32%), midsize Fusion (down 12%), and sporty Mustang (down 23.5%, mostly due to a decline in sales to rental-car fleets, LaNeve said). Sales of the midsize Lincoln MKZ sedan also declined, by 14% from a year ago.
  • Ford's fleet-sales gain appeared to come largely from a jump in sales to rental-car fleets, the least profitable type of fleet business. LaNeve said that the year-over-year jump in retail sales in May was due mostly to the timing of deliveries, and reiterated that Ford's rental-fleet sales for the full year should be roughly flat versus 2016.

What it means for Ford investors

Ford got a new CEO in May: Jim Hackett took the reins from Mark Fields, who was ushered into retirement by Ford's board of directors. One of the board's concerns: Ford's adjusted EBIT (earnings before interest and taxes) profit margin in North America fell to 8.3% in the first quarter from 12.9% a year ago, while rival GM managed a healthy 11.7%.

I don't know yet what Hackett will do about that. (To be fair, it's still very early in his tenure; he may not know yet, either.) From a U.S. sales perspective, I have thought and continue to think that Ford is playing its cards pretty well in a difficult market. Ford has chosen to be conservative with incentives, preserving profitability at the cost of incremental sales (and market share).

That may not have looked like such a great choice in the first quarter, when sales slipped and some high costs cut into profits. But rising inventories at GM and other competitors, along with falling used-car prices, might well combine to give the new-car market a "double whammy" before long.

If so, Ford's decision to go against the industry grain, by keeping inventories trim and discounts restrained, could turn out to look pretty smart in retrospect.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.