Why Are Ford's Sales Lagging?

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The market may not be loving their stocks, but buyers appear to be loving their vehicles: Despite grim economic predictions, all three of the Detroit automakers posted solid sales gains in September, with the market's overall pace the strongest seen since April.

Chrysler led the way with a 27% year-over-year sales gain, thanks to a surprisingly well-refreshed product lineup that is starting to gather momentum in the market. But the real story, at least from a Detroit perspective, is this: General Motors (NYS: GM) posted big gains, while supposedly stronger Ford (NYS: F) barely kept pace with the market.

What's behind that?

What's up with Ford?
Ford's sales were up 9% year over year -- not an impressive number, but not a bad one. More impressive was the level of Ford's incentive spending: down 9.9%, per Edmunds, strongly suggesting that the sales Ford did make were highly profitable ones. But lower incentives may have been part of the reason Ford's sales gains lagged its Detroit counterparts -- and that may not be bad news for shareholders.

Another reason Ford might be lagging: slow sales of the Focus. Ford's new Focus is a superb compact that outpaces competing entries from Toyota (NYS: TM) and Honda (NYS: HMC) -- it's one of the company's best cars ever. But September sales were down 24% over year-ago numbers, and that was another part of why Ford's overall results were less impressive than one might expect.

Ford executives said this was entirely a supply problem. Production constraints have limited the number of vehicles available, they say, but the situation should be resolved in October. This has been a refrain for Ford in recent months, although the company has been vague about the details. There have been rumors of parts-supply problems, but it's also possible that Ford simply misjudged demand for its new model.

But elsewhere, like GM, the Blue Oval saw nice gains. Sales of the big F-Series pickup were up 14.7%, and the compact Escape SUV, which is due to be replaced soon, posted a 41% gain. And the Explorer continues to shine: Launched earlier this year, the completely revamped SUV has become one of Ford's biggest hits, with sales increasing 203% versus those of its predecessor a year ago.

Ford's popular fuel-efficient cars also continue to do well. Like the Escape, the midsize Fusion is due to be replaced next year, but that hasn't deterred buyers, with sales up 22.6% over fine year-ago numbers. And the small Fiesta continued to post solid sales, with Ford citing particular strength for both models in West Coast markets -- long an import stronghold.

But those lost Focus sales surely didn't help.

Meanwhile, impressive strength from the General
The story at GM? Trucks. Although the General posted solid sales across the board, it was the big pickup trucks and SUVs that led the way. Overall, GM's sales were up 20% over September 2010, but trucks were up 34% -- this despite continued high fuel prices, and despite the fact that GM's truck models are arguably overdue for replacement.

The story here is probably a pretty simple one: Folks need new trucks. Thanks to consumers' reluctance to spend in the wake of the financial crisis, the average of vehicles in the U.S. market is now 11 years, a historically high number. Gas prices remain high, but they're below their peak -- and they've been high long enough that Americans have come to accept them as the new normal.

Meanwhile, sales of GM's recent hit products remain strong: The compact Chevy Cruze continued to post strong numbers, and sales of the Equinox crossover were up 33%. Downsides? Fleet sales have crept up a bit, to a still-OK 26% of GM's total U.S. sales, and incentives remain higher than I'd like -- but down 2.1% from last September's spending, according to Edmunds, which represents progress.

Long story short: GM's product line still has some gaps relative to competitors, but new products are on the way -- and meanwhile, the existing products continue to sell well without excessive incentives.

Is Detroit's window of opportunity closing?
Once again in September, Toyota and Honda posted year-over-year sales declines as supplies of key products continued to be short because of tsunami damage. But supplies increased over the course of the month, and Toyota at least may already be back up to full speed, or close. The Detroit Three, along with Hyundai (OTC BB: HYMTF.PK) and Nissan (OTC BB: NSANY.PK), have seen great sales gains in the U.S. (and elsewhere) while the Japanese leaders struggled to restore production in the wake of the tsunami.

With production restored, I expect Toyota to come out blazing with aggressive marketing and incentives in October -- but how much of its lost market share will it be able to reclaim? For all of the automakers, that is the multibillion-dollar question. Stay tuned.

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At the time this article was published Fool contributorJohn Rosevearowns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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