Loading...
Symbols:
Authors:

September Auto Sales: Why Was Ford Hit So Hard?

by: Markos Kaminis October 03, 2008 | about stocks: F / GM / HMC / TM    
Markos Kaminis

Markos Kaminis

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

At the end of each month, automobile manufacturers religiously offer their monthly sales data. This particular month provided yet another piece of economic puzzle that is quickly clarifying a daunting degree of deterioration.

Consumer stress, born of high gasoline and other expenditures, along with increasingly tightening credit, rising unemployment, falling investment securities and home values have all driven down consumer sentiment. Consumers clearly have good reason to avoid large purchases, especially the new car buy. And of those few who are looking for a new vehicle, they've even less reason to buy a gas guzzling monster of the Midway.

September Sales

Ford Motor Corporation (NYSE: F)

Ford Motor (NYSE: F) bravely produced its report earlier than many of its diseased peers. Unfortunately, it also set a very low bar for the rest of the bunch. Ford posted a September sales figure that represented a 34.6% decrease from its prior year result. While the data was impacted by one less day in this year's measured period, due to holiday, it was painfully obvious that the truck-heavy Ford suffered from its unique exposure.

Ford's SUV sales nosedived 57%, and overall US truck and van sales fell 38.8%. Clearly a sign that things could be different, Ford, Lincoln and Mercury brand sales declined a less dramatic 19.4%, and the Ford Focus actually grew sales by 4.7%!

So, it would seem the pathway forward is clearly marked for Ford: shift toward smaller, fuel efficient vehicles or else! However, gas prices have come back home, and are flirting with sub-$3 a gallon levels now. If a side effect of economic decline brings gasoline down enough, you have to wonder if demand will renew for the F-Series Pickup Trucks and larger vehicles generally. Ford's F-Series Truck segment experienced a sales decline of 42% in September anyway. As we first noted in our news breaking story, Ford is introducing a new line of pickup truck to address the current environment, the Ford F-1.50 Pickup.

Why Was Ford Hit So Hard?

In comparing Ford's results with its peers, a critical question commands us to answer it. Why were Ford's numbers worse than its peers? Clearly, Ford had greater exposure to the truck and SUV segments, and therefore intensified sensitivity to gasoline prices. So, as consumers generally shied away from gas guzzling trucks, it meant more to the market share leader, Ford. But, could there be more to it than that... After all, GM's truck sales did not collapse nearly as deeply as Ford's.

We took a closer look and noted that in 2007, Ford Crossover vehicles did especially well. We suspect, that while this acted as a stopgap measure in the early consumer migration from trucks, it also compounded upon this year's broader migration to the most fuel efficient of vehicles. In other words, people aren't settling for a more efficient SUV type vehicle or even a crossover; rather, they're hardly buying less fuel efficient vehicles at all now.

We also believe there is a competitive issue at play. The game has changed, and Ford's trucks are not among the most fuel efficient in "standard" categories, and when they are the most fuel efficient, they have other characteristics that seem discouraging to that specific segment's purchaser or Ford fans generally.

We looked at the fuel efficiency of Ford's trucks, compared to its competitors. While Ford offered vehicles among the most efficient, those vehicles didn't really fit for true Pickup and SUV fans. First of all, Ford's fuel efficient Pickup is really a Sub-Pickup. Ford is nowhere to be found in the efficient Standard Pickups list of most efficient vehicles. So, while every self-respecting Pickup coveter out there wants an F-150, when gas gets too pricey, they're looking at efficiency with a greater level of interest. As far as SUVs go, the king of SUV's, Ford, again offers a super-efficient vehicle. However, that vehicle is a hybrid, and hybrids have one big drawback, a hefty upfront sticker price. So, when price sensitive shoppers cruise the car lots, they're looking at efficiency, but that sticker price means a lot too.

Ford appears to have made a couple critical strategic mistakes in not designing league leading efficiency in "standard" lines of products. Even so, I view the greatest negative factor impacting F's results as simply, their greater exposure to trucks and SUVs.

General Motors (NYSE: GM)

GM's sales fell in September as well, but did markedly better than Ford. GM's light motor vehicle sales fell 15.6% in September. Surprisingly, GM's light motor truck sales only declined 19.3% (Ford's dropped 38.8%). As far as SUV's go, GM's did just as poorly as Ford's. However, as far as Pickups go, GM's stayed in the Standard Pickup group with its Silverado and Sierra, and saw a September sales decline of just 5.5%. This might explain why Ford is now working to introduce a more fuel efficient F-Series vehicle.

Toyota Motors (NYSE: TM) and Honda (NYSE: HMC)

Toyota's September sales fell an astounding 32.3%, driving TM's shares down 2.2% today. Toyota has been the darling of the industry during this downturn, second only to fuel efficient king Honda Motor (NYSE: HMC). But HMC fell 1.7% today also, as its September sales declined 24%.

So, there was no place to hide in the auto industry today for all you well-diversified types in need of universal exposure for the sake of risk reduction! The questions you should really be asking yourself at this point are, how much are these companies going to have to shrink and change to survive, and who might not make it.

Related Articles

This article has 11 comments:

  •  
    Oct 03 09:47 AM
    I take it as an encouraging sign that Ford's truck-heavy lineup fared about as well as Toyota's Camry-heavy line. I hope Ford has enough sense to bring in the Falcon Mondeo from Australia...
    Reply
  •  
    Oct 03 09:49 AM
    GM was all over the internet and TV with their commercials and sales were still down. It looks like GM should just cut their advertising spending down to nothing and start building their shares back up. All agencies/contractors should be cut.
    Reply
  •  
    Oct 03 10:09 AM
    I'm a little confused by the whole premise of the article. Why single out Ford...it was a lousy month in general:

    BMW down 25.8%
    Chrysler down 32.8%
    Ford down 34.6%
    GM down 15.8%
    Honda down 24.0%
    Nissan down 36.8%
    Toyota down
    Reply
  •  
    Oct 03 11:09 AM
    The fact that Ford has not jumped into the incentive battle with GM and Chrysler for the past two months is the real reason that they performed in a more negative manner. Plus, while Ford reduced fleet sales by 29% in September, GM increased fleet sales by 19%. The only vehicle that GM has that has appeared to to actually have "true" demand was the new Malibu. But then it comes out that 54% of all Malibus sold in September were fleet sales. This does not bode well for GM. It is the same old story with GM. The GM ego is doing what they can to make sure that 2008 is not the year that they lose the title of largest automaker in the world. Unfortunately, they are making moves in the short term that are going to hurt them down the road. By this I am referring to the harm on the residuals of the Malibu that will be the result of fleet dumping your "hottest" vehicle.

    You have to admire Mulally at Ford. His goal before the bottom fell out of the market was to reduce fleet sales and fire sale discounts in order to improve the residuals of the Ford lineup along with higher margins that come with this approach. And even now Ford has not matched GM, Chrysler, and now even Nissan in giving the product away. Ford has the F150 coming out in a month and nicely updated Fusions, Milans, and MKZs in December that will help Ford increase prices and sales at the same time. Focus prodcution has been able to finally catch up due to the slow Sept. sales so the pipeline will start being able to feed demand if there is any semblance of a return to stability for the rest of the year. Ford is doing the right thing no matter how painful it is now. As I write this, Toyota just announced 0% financing on all their major models. Now let's see if Ford can still hold the line in October. Ford may have no choice but to react to Toyota's new firesale since they are quickly becoming Ford's real competition.
    Reply
  •  
    Oct 03 12:32 PM
    I've rented Camry's on several trips out of town. Toyota also sells through to rental companies ("fleets").
    Reply
  •  
    Oct 03 03:25 PM
    To jobu37:

    You may be correct on the comment that Ford is doing the right thing by not playing as much in the incentives and fleet sales....maybe. It all depends on the price/cost relationship of each company.

    The car business has always been a capital intensive business, thus high fixed costs are a reality, so when your sales are down the question always becomes do we shut down the factories and incur all of the fixed cost with zero revenue, or continue to run the factories (paying off the fixed costs, assuming you are making a variable profit) and have diminshed, but some revenue?

    When you shut down the factory, you still pay property taxes, depreciation, etc. plus all of the R+D for new products and layoff benefits for the workforce. You have to weigh that against the long term affect of lowering the resale value of your brand.

    Several car companies have brought down their breakeven point over the years, so I'm not sure that accepting the zero revenue solution is always the right choice in the short term.

    Having said that, temporarily shutting down the plant is certainly not a good long term solution. If the lower sales look like they are going to last for a while, decommissioning the plant and permanently reducing the workforce is the correct answer.

    In September, GM offered it's employee discount to everyone. That kept revenue flowing and allowed their unit sales to only be down 15% vs 30% for almost everyone else. One of the good things that did was to reduce national inventory by about 150,000 units going into the 2009 model year. Whether that was a good decision will depend on:
    - What was the cost of the vehicles sold?
    - How many sales will it rob from October?
    - How long will this severe period of sales sales go on (read that the credit crunch brought to us by the banks and U.S. congress)?

    Be interesting to see.
    Reply
  •  
    Oct 03 11:01 PM
    The Toyota plant in Indiana has had there company employees painting lines and reading book instead of laying them off. They have prevented a backlash from the press and employees by not laying them off and creating a negative impression. They will not be able to maintain this mirage forever.
    Reply
  •  
    Oct 04 04:04 PM
    I am amazed that the Big 3 might let the gasoline going down a little stop them from immediately developing all their cars to get at least 25 mpg average overall. The others seem to have figured this out a long time ago.
    Billy
    Reply
  •  
    Oct 05 11:39 AM
    Roudy

    Why is it that you think they are slowing down??
    Reply
  •  
    Oct 05 01:45 PM
    There was a 25 billion dollar bail out for us auto makers which didn't receive much press of late.

    www.freep.com/apps/pbc...
    Reply
  •  
    Oct 10 12:30 PM
    now even Toyota's jumping on the incentive bandwagon with Zero percent financing on most models. When honda jumps in, we'll know it's serious
    Reply
More Comments on GM ยป
More by Markos Kaminis

Investment Resources
Money Management 

Research 

Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Autos 

Aircraft & Parts 

Airlines 

Rail Transport