Ford Is Falling Behind at Home - and It's Not a Problem

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Ford Dearborn Truck Plant Builds New 2014 F-150 Trucks
Bill Pugliano/Getty ImagesA new 2014 Ford F-150 truck exits the Dearborn Truck Plant in Dearborn, Mich. Ford cut its incentives on F-150s this year specifically to slow down sales.
Is Ford (F) in trouble in its home market?

Sales are falling in a U.S. market that's moving up. Market share is down. The company's most important product is losing ground to more aggressive rivals. To hear some pundits tell it, the company's prospects are about to "fall apart." Is that true?

It's not. In fact, there are good reasons to think that Ford is doing just fine. Here's why.

It's All Part of the Company's Plan

It is true that Ford's U.S. sales this year are down 0.3 percent through August, while the overall market is up 5.1 percent. It's true that General Motors (GM) and Toyota (TM) and especially Fiat Chrysler (FIATY) have all made gains while Ford has lost ground.

And it's true that experts like Edmunds are forecasting another year-over-year sales decline for Ford in September -- while all of its major rivals are expected to post gains.

But Ford officials say that there are two big reasons that their U.S. sales numbers haven't looked as strong as you might expect this year.

First, Ford has made a decision to reduce its sales to rental-car fleets. Rental-car fleet sales have been an important part of Ford's business for years. But automakers sell cars to rental-car companies at big discounts. That means less profit per car. At a time when Ford's factories are super-busy, Ford would rather build more vehicles for retail sales, where it makes the most profits.

Ford U.S. sales chief John Felice said that the company's sales to rental-car fleets were down 36 percent in August. That's a big drop, but the company hasn't given up on rental-car sales entirely: Year to date, Ford's sales to rental-car fleets account for 10 percent of its total U.S. sales.

That's still quite a bit. But it's down from 12 percent at this time last year, and that's enough to take a bite out of Ford's overall U.S. sales.

Why Ford Is Deliberately Giving Up Market Share in Pickups -- For Now

The second reason for Ford's lag in sales gains has to do with its all-new 2015 F-150 pickup.

How can a truck that hasn't arrived at dealers yet be responsible for a drop in sales? It's not the truck itself that's at fault, it's what Ford is doing to get ready to build it.

You've probably heard by now that the all-new F-150 features aluminum body panels. Aluminum-bodied vehicles have been around for decades, but no automaker has ever tried to make one in the quantities that Ford will attempt with its new pickup.

Ford makes the F-150 in two factories, in Dearborn, Michigan, and near Kansas City, Missouri. Each of those factories runs three "crews," building 60 trucks an hour, about 120 hours a week. And each of those factories will have to be closed for a total of 12 weeks so that Ford can make the changes needed to build its all-new trucks.

A factory that builds aluminum-bodied vehicles needs different equipment and processes than one that builds steel-bodied vehicles. Ford has worked with toolmakers and suppliers to create all-new types of tooling in order to make its new truck. Installing all of that equipment and getting it ready to go at full speed is a complex, time-consuming project. That's why so much downtime is needed.

All of that downtime means that Ford will lose a total of 90,000 units of production by the time the changes are completed. Because of that lost production, Ford has been worried that its dealers would run out of 2014 trucks before it was ready to ship the all-new 2015 models.

So Ford deliberately took steps to slow its truck sales down a bit -- by lowering its incentives. That move has sent some price-sensitive buyers to other brands. But it has also increased the average profit per sale for Ford, keeping its profits strong.

Ford executives say that the F-150's sales this year are "right on plan." The company may have dropped a bit of market share this year, but it's a safe bet that the Blue Oval will come out swinging once its all-new truck is on dealers' lots.

Isn't Ford Just Making Excuses for Poor Sales Performance?

No, it's not. If the stories behind the declines in Ford's truck and fleet sales were just PR spin, you'd expect to see Ford taking a big hit where it counts -- in its earnings.

But Ford's North American division posted a profit of $2.4 billion last quarter, up $119 million from the year-ago period. Its pre-tax profit margin was 11.6 percent, which is simply outstanding for a mass-market automaker.

That margin will shrink a bit as the year goes on, as the costs of all that factory retooling -- and the other moves that Ford is making to launch the F-150 and its other new-for-2015 products -- hit the company's bottom line.

However, Ford's profits in North America should continue to be strong. Until that starts to change, there's no reason to worry about Ford's sales numbers.

Motley Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. Find out the easy way for investors to ride the new mega-trend in the automotive industry in our free report.
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