Ford’s December Sales Numbers Do Not Tell The Full Story

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Ford Motors (NYSE:F) reported less than expected sales numbers for the December holiday period. Over the past few years, the Black Friday and holiday period has become a hot one for car sales.  Special deals for the holidays have turned the period into an especially lucrative one for car companies. [1] This year companies such as Fiat Chrysler, Toyota, and General Motors all posted double-digit year-over-year sales gains for the period. [2] However, Ford only managed a 1% increase. But, these numbers should be interpreted with the caveat that 2014 was a building year for Ford and digging deeper into the numbers one can find bright spots for the company going forward.

New Models Do Well

Between 2004 and 2014, only one Ford Motors company model had ever breached the 300,000 unit sales mark in a calendar year, the F-series. However, this year, two other Ford models managed to achieve this feat: Escape and Fusion. Ford Escape, a compact crossover vehicle, crossed the line with a remarkable surge late in the year. The Escape had its best December ever enabling it to reach a record 306,000 unit sales for the calendar year 2014. Ford Fusion, a midsize car based on the Ford Fiesta, also achieved a full-year record, selling 307,000 units in 2014. [3]

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The significant thing about Escape’s sales was its sales mix. Just over one-third of the newly sold Escape models were the titanium trim models. The higher presence of these models in the sales mix means that the company will command a higher unit price per vehicle sold in North America for this year. According to Edmunds.com, the titanium trim options add anywhere between $5,000 and $10,000 to the retail price depending on options. [4] The other reason why these numbers are significant is because this proves that Ford is still capable of designing cars that an ever greater number of consumers is willing to buy.

However, the numbers do not tell the complete story. Take Ford Edge for example. Over the past four years, the Ford Edge averaged just over 124,ooo units but in 2014 unit sales dropped to 108,000. The 16% decline in volume might be interpreted as a red flag because this was a year in which SUVs and crossovers grew by 8.3% and 13.3% respectively on a year-over-year basis. [5] The reason behind this decline was supply problems. As a result, Ford focused only on retail sales for the year. Retail sales are generally more profitable and thus offset the 93% decline in fleet sales for December to some extent. However, this should not be interpreted as a trend. As Ford adjusts its vehicle production, a sales decline such as this should not be repeated.

F-Series Due For An Uptick

The F-Series has been the U.S.’s best selling vehicle and pick-up truck for the better part of 4 decades now. In 2014, however, sales of the model slowed due to the changeover to the aluminum bodied F-150 model for the year 2015 from the previous steel based one. The reason for the switch in material is that aluminum is lighter than steel and thus enables better handling and fuel-efficiency. However, Ford had to shut down its Dearborn facility in order to allow for a retooling of the factory for the production of aluminum based vehicles instead of steel based ones. Ford tried to compensate for the shutdown in production by stocking up dealers with inventory for a much longer period than usual.

As a result of the delicate balance of the F-series inventory and the plant shutdown, the auto maker may have lost close to 90,000 unit sakes for the year. Sales dropped 0.3% in December and 1.3% for the whole year. [6] But it is worth noting that despite the tight supply of the F-series, strong demand for the model enabled the company to sell the truck with the least incentives among major competitors. The greater profitability of each sale, thus, outweighs the sales decline.

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Notes:
  1. Black Friday car sales explode in popularity, CNBC, November 2014 []
  2. Chrysler to Lead December Sales Gains, as Ford Begins F150 Rollout, The Street, December 2014 []
  3. Ford Motor Company Sales Rise 1.2 Percent in December 2014, Automobile Mag, January 2015 []
  4. Ford Escape Incentives and Rebates, Edmunds.com, January 2015 []
  5. Auto Sales, Wall Street Journal, January 2015 []
  6. Ford’s sales flat in 2014 amid F-150 roll-out, Mlive, January 2014 []