Should Ford Motors Focus More On Its Car sales In The U.S.?

Ford Motors‘ (NYSE:F) released its U.S. November sales numbers on December 1, 2015 which revealed that car sales were down nearly 12% compared to the same period last year, led by a nearly 25% decline in its Focus and C-Max models. ^[1] We note, however, that monthly data can be lumpy.  During the same period of comparison, the company’s truck sales increased by 18%, primarily due to the success of its F-Series and Transit truck models, the latter of which was introduced in 2014.  With the higher margins and greater popularity of its pick-up trucks, Ford’s North American truck segment accounts for more than 25% of its valuation, while the North American car segment accounts for less than 2% of the company’s valuation according to our estimates. We believe improving market share in the trucks segment can have a greater impact on Ford’s valuation and a fleeting decline in car sales should not be a major cause of concern.

Improving Market Share In the Trucks Segment Can Lead To A Higher Upside To Our Price Estimate

In 2014 Ford’s car market share in the U.S. was less than 10%. We estimate this number will remain stable over our forecast period.  However, in a scenario where Ford is able to capture a higher market share and this figure increases by 250 bps to reach around 12.5% by the end of our forecast period, there can be a nearly 5% upside to our price estimate. Ford is using innovation to attract more buyers towards its cars. It announced on December 3rd that it will launch Apple’s Siri Eyes–Free update for over 5 million cars that are equipped with SYNC, Ford’s entertainment and communications system. This update will be available on all Ford models from 2011 to 2016 and will provide several conveniences to iPhone users such as using voice requests for looking up phone numbers or restaurants, selecting and playing music and getting directions through Apple maps. ^[2].

We estimate Ford’s Truck market share to stabilize at around 21% over our forecast period. A 300 bps increase in this market share by the end of our forecast period can lead to more than 8% upside in our price estimate. The profitability of this segment is higher than most of the other segments of the company. In 2015 Ford launched a new version of its most popular vehicle F-150 and while initial sales were slow as production was not up to speed and other players such as Chevrolet were grabbing Ford’s market share, from September 2015 there was a surge in sales of the F-series. ^[3]. The company’s Transit model launched in 2014, recorded sales of more than 100,000 units for the year 2015 (to November-end). ^[1] The popularity of Ford’s pick up trucks and the company’s focus on new models or upgraded versions of its popular models could well improve its market share in future.

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1. Ford Company Release, December 1, 2015 [↩] [↩]
2. Ford Press Release, December 3, 2015 [↩]
3. Ford’s F-150, Lots of Aluminium, Plenty of Awesome, Bloomberg, October 19, 2015 [↩]