Is Ford's Momentum Returning?

Could auto sales -- and with them, prospects for Ford (NYS: F) in its most important market -- finally be picking up?

The official tallies won't be out until mid-day Thursday, but it's already looking like November has been a very good month for light-vehicle sales in the United States. Several automakers are expected to post double-digit gains, according to analysts at Edmunds, including Ford -- which confirmed on Tuesday that its sales have been strong in recent weeks.

But not all the news is good, as some longer-term problems are expected to persist.

A strong month for Ford and Detroit
Ford sales analyst Erich Merkle told reporters on Tuesday that he expected the annualized rate of U.S. auto sales -- called the SAAR, for "seasonally adjusted annualized rate," a widely used industry indicator -- to hit the "mid-13-milion range" for November. That would be a sizable bump from last November's 12.3 million SAAR and a promising uptick from last month's muted results. While he declined to give official forecasts, Merkle did note that Ford expected a surge in sales of small SUVs -- a segment led by Ford's Escape -- and further evidence that consumers are shifting into smaller vehicles.

Those expectations agree with Edmunds' forecast, which calls for an SAAR of 13.6 million (coincidentally, a 13.6% year-over-year gain) led by double-digit sales increase for Ford and Chrysler and a gain of nearly 10% for General Motors (NYS: GM) . That would be the highest level seen all year and a strong positive sign for the economy and for the ongoing Detroit revival.

Clearly, Detroit's product renaissance is continuing to pay off, with GM and Ford offering (for the first time ever, basically) very competitive smaller cars and Chrysler continuing to reap the benefits of its high-speed product-line makeover. But that's not all that's driving this Detroit surge.

Not everyone will be seeing major gains
What else is behind Detroit's ongoing success? One key factor isn't new: Ongoing weakness at the two Japanese giants, Toyota (NYS: TM) and Honda (NYS: HMC) . Honda's North America chief Tetsuo Iwamura has said that he expects November results to show another difficult month, thanks to continuing production challenges related to flooding in Thailand. Iwamura now predicts that Honda will be back up to speed in January.

Edmunds' forecast concurs with Iwamura's dour outlooks, as its analysts predict a tiny 2.5% gain for Honda. Edmunds sees a similarly grim 3.5% increase for Toyota, which has been facing similar challenges but recently seemed to have escaped the worst of the Thailand floods. Nissan (OTC: NSANY), which escaped significant damage from both the Thai floods and the Japanese tsunami in March, is expected to post a gain of 8.2%, Edmunds says.

Is this a sustainable increase?
Whether this increase is a shift or a blip remains to be seen. There are some good reasons for pessimism -- some analysts have suggested that November's uptick will turn out to have been a "Black Friday" effect, with deal-minded shoppers taking advantage of dealers' year-end clearance sales.

Ford's hint at strong sales for its Escape -- a model that will be replaced shortly -- isn't at odds with that theory, though there's also reason for cautious optimism. As Ford's Merkle pointed out, to some extent demand is being driven by the fact that folks need new cars -- the average age of the vehicles on U.S. roads is nearly 11 years old now, well above recent historical norms.

This is the "pent-up demand" that Ford CEO Alan Mulally and other industry-watchers have cited as they look toward 2012 with optimism, though GM CEO Dan Akerson has been sounding more cautious notes as he looks at Europe with concern. As Merkle said, while recent numbers have been strong, sustaining sales at that level will depend on factors like consumer confidence, employment rates, and the stock market -- factors that continue to be well beyond Detroit's control.

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