Will Ford Dominate This Market?

Ford (F) sold 231,316 vehicles in the US market in April 2016 which was 4% better than April 2015. Retail sales also grew 3%, making this month of April the best April for retail sales since April 2006. This compares with a total of 259,557 vehicles sold by General Motors which meant a 3.5% growth over its last year April sales and Toyota’s 211,125 units with an increase of 3.8 %. The industry sold more than 1.5 million vehicles last month growing by 3.6 % over the last year April sales.
The seasonally adjusted annual rate (SAAR) of the US auto industry during April was 17.4 million per year.

Ford’s SUVs and the F-series drove the sales for the company last month. Ford brand SUVs sold 65,474 vehicles last month making it their best-ever April performance with sales of the Explorer model up 22% versus a year ago. In the F-series, the bestselling truck, F-150 boosted the sales to increase 13% to cross the 70,000 mark for the second month in a row. This was also the best April for the F-series in the last 11 years. Ford’s vans also sold 23,221 copies which was the best performance for April in the last 38 years.

The luxury brand Lincoln also had a great month. It jumped 20% with 9,776 vehicles sold. Lincoln MKX saw a 94% gain, driving overall Lincoln brand SUV sales to a 53% increase last month with 6,985 vehicles sold.

Transaction price increased:

Ford’s average transaction price increased by $1,500 compared to the same period last year. Compared to the industry average, this was $700 higher versus the industry's average increase. This was primarily due to a strong mix of high-end series trucks and SUVs and fewer passenger cars sold by Ford. Ford’s passenger cars segment declined 11.5% during April, while sales of utilities and trucks rose 4.4% and 3.3%, respectively.

Fleet sales share increased:

The share of fleet sales as a percentage of the total sales of Ford vehicles also increased in the US in April as well as year to date. For April, this metric was 32% of Ford's total sales which breaks down to 13% commercial sales, 7 % government sales, and 12 % daily rental. For the year to date period, the fleet sales amounted to 35% of total sales compared to 30% for the same four month period last year.

The general perception for fleet sales is that they are undesirable due to the fact that they don’t generate highly profitable transactions. Hence, in the case of Ford too, the above mentioned increase in fleet sales seems undesirable at the first instance. However, Ford’s operating margin for the first quarter from the US business increased from 7.8% during last year's first quarter all the way up to 12.9% i.e. a staggering 510-basis-point jump.

Another fact is that the commercial and government sales form a very profitable portion of the fleet sales while only the daily rental sales is are typically seen as less profitable and hence less desirable. Now, in April, the daily rental sales were only 37.5% of the fleet sales while the rest was the more profitable sales. Hence, this increase in fleet sales should be seen positively by Ford investors.


There was a slight increase in Ford’s inventories too in April compared to March. The industry norm is an inventory that could supply for about 60 days. Ford's gross stock of inventory rose from March's 80 days' supply level to 83 days' supply at the end of April. Still, there is little to worry about inventories for Ford because nearly half of its total gross stock inventory is trucks which are moving very fast out of the stable at the moment.

Fears of peaking-out:

Despite the major automakers from Detroit reporting a strong April sales, analysts have emphatically stated that the US market is again close to a cyclical peak. "We continue to believe sales growth will be muted this year," Joseph Spak of RBC Capital said in a note to investors. Inventory data issued before the April sales release says that inventories of vehicles could soon reach uncomfortable levels if more production cuts are not made soon. But if production cuts are made, the cost efficiency and eventually the margins decrease. Further, the sluggish pace of the U.S. economic growth adds to concerns that the auto industry recovery could run out of fuel.


Ford has posted strong growth in US sales last month thanks to the trucks and SUVs. There was an industry leading increase in average transaction price too. The fleet sales’ share in the total sales did increase but this time around, it didn’t mean that margins declined as is the general perception. In fact, the margins continued to increase. The growing inventories too are less of a concern as they mostly comprise of truck which are fast moving.

However, concerns over the peaking-out of US vehicle sales have not dwindled yet. Analysts have indicated a possible slowdown in the latter half of the year.
Published on May 11, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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