Why Ford’s North America Troubles Might Be Here To Stay
Ford Motor Company (NYSE: F) saw its North America market share decline by 50 basis points in the third quarter of fiscal year 2016 to 13.6%. The worrying thing for the company was that, on a year-over-year basis, its sales decline occured in all three market segments in the U.S. auto market—a huge chunk of the overall North American auto market.
In the tables below, we look at how Ford saw year-over-year sales declines in all three market segments in the U.S. auto market: passenger cars, SUVs and pick-up trucks. In each of these segments, we take one or two of the highest selling Ford vehicles and compare their 2016 sales numbers with 2015 numbers. The vehicles are: the F-series trucks in the pick-up truck market, the Escape and Explorer in the SUV market, and the Focus and Fusion in the passenger car markets. Since, these five vehicles make up close to a third of the company’s overall sales in North America, analyzing their sales numbers gives us a good sense of the high level trends impacting Ford’s performance in this market.
In the July-September period in 2016, Ford saw the new unit sales of these five vehicles decline by around 9.7% year over year. The biggest decline came in the passenger car market, with sales of Fusion and Focus together declining by 19.6%. Since, the passenger car market in the U.S. is down 8.9% on a year through date basis, a decline in this segment is not surprising, but the extent of the decline shows that Ford isn’t well equipped to handle a tough passenger car market. This is not really surprising since Ford’s strength has traditionally been the SUV and pick-up truck segments. But the company saw sales in both segments decline in the third quarter, with SUV sales declining by 10.1%. This is really worrying for Ford investors since SUV sales are up 4.2% on a year-to-date basis, with SUV and Crossover sales combined up 6.4%. Similarly, Ford’s sales in the pick-up truck segment declined by 3.3%, despite the market growing by 5.6% on a year-to-date basis.
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The reasons behind the decline are largely to do with Ford trying to keep its incentives competitive instead of lowering its transaction prices just to drive unit sales. Either way, these factors resulted in a 7% year over year decline in revenue in the third quarter. Combined with the defective door latch related vehicle recall, the impact of the Brexit referendum vote and the higher costs associated with the launch of Ford’s Super Duty pick-up truck, we expect Ford to post lower profitability in the next couple of years.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor
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