Another Sign of Progress for Ford
Auto sales are a key measure of consumer confidence. Here in the U.S., auto sales have been rising in recent months -- though they still have a long way to go before they reach the levels seen in the years before the 2008 economic crisis.
A lot of that rise has been attributable to the return to health of Japanese automakers that had been clobbered by the March 2011 tsunami. Meanwhile, sales growth for Ford (NYS: F) , the strongest of the U.S. automakers, has been just so-so.
Will that trend continue in September? Analysts have begun weighing in, and at least one prediction is very promising for Ford.
Why deals for consumers are a bad deal for Detroit
The sales-watchers at TrueCar.com have a prediction that, if it pans out, bodes quite well for several automakers, including the Blue Oval: TrueCar's analysts see sales up 10.5% over September 2011 totals; the annualized sales rate (or SAAR, a widely watched measure) coming in at a healthy 14.6 million; and automakers' spending on incentives down 6.7% over year-ago totals.
That last number may turn out to be the most significant, if it holds. All mass-market automakers use incentives, those cash-back or cheap-financing offers one sees advertised, to adjust their pricing or boost sales of slower-moving models, to some extent. But too many incentives hurt margins, and that in turn has a big impact on the manufacturer's bottom line.
For a long time, the Detroit automakers used heavy incentives to keep less-than-competitive products selling: If we can't compete with Toyota (NYS: TM) and Honda (NYS: HMC) on quality, the thinking went, at least we can offer a better deal. Eventually, margins eroded to the point where the companies weren't sustainable through a bad downturn. That led to disaster.
Ford, General Motors (NYS: GM) , and Chrysler are on much more solid ground these days. But all three of the Detroit automakers have continued to be at or near the top of the incentives-spending rankings: Dealer expectations, and lingering brand damage from the bad old days of Detroit "quality," have made great-sounding offers a must-have.
But Ford, at least, is making an effort to roll that back.
Falling incentives mean progress for Ford
TrueCar predicts that Ford's per-vehicle spending on incentives in September will be down 7.8% versus year-ago levels. That's a big drop, and while Ford is still spending more than many of its non-U.S.-based rivals, it's well below its Detroit counterparts. That's a sign that the company's efforts to establish premium pricing for its cars and trucks are gradually bearing fruit.
Those efforts are a key part of Ford's global business plan, called "One Ford." In a nutshell, "One Ford" calls for a streamlined global lineup of cars and trucks, each of which is carefully refined to be -- here's the key -- a very competitive product that can command a premium price. That premium pricing improves Ford's margins and profits. It also gives Ford more money to spend on the next generation of cars and trucks, which should thus maintain Ford's competitive position (and profits).
So far, that plan has worked out pretty well. Ford's recent new entries -- the Focus, the Explorer, the Escape, and now the new Fusion -- have each garnered strongly positive reviews and won new customers for the company. In fact, Ford's sales growth has been limited to some extent by its factories -- it's selling all it can make of some key models.
But continuing that progress means improving Ford's margins here at home, and that means reining in incentives. If TrueCar's prediction pans out, it'll be another good sign of progress for Ford.
Ford's stock has been under pressure lately, dropping to levels not seen in years. But the company is still performing very well at home and is investing heavily for growth abroad. Have these short-term pressures created an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Click here to get instant access to this premium report.
The article Another Sign of Progress for Ford originally appeared on Fool.com.Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford and creating a synthetic long position in Ford. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
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