Is Ford Maxed Out?

As was widely expected, Ford's (NYS: F) U.S. sales were down in April versus year-ago numbers. The automaker reported a 5% decline in sales versus its year-ago results, as the overall pace of industry sales appeared to slow somewhat from the high rate seen in the first quarter.

Ford's sales did come in a bit ahead of analyst estimates. And as Ford officials pointed out -- and others have said in recent days -- that decline is arguably a little misleading. But it's clear that April was something of a mixed bag for the Blue Oval.

Monthly results that require some interpretation
Why is that decline arguably misleading? Because of a calendar quirk: Speaking to analysts and media on Tuesday, Ford vice president Ken Czubay noted that this past April had three fewer "selling days" -- many car dealers close on Sundays and holidays -- than April of 2011. Correcting for that on a "daily selling rate" basis, Ford's sales were up 7% versus a strong year-ago month, Czubay said.

Ford's sales highlights for the month followed a familiar theme -- fuel efficiency:

  • Strong car sales. Ford's soon-to-be-replaced midsize Fusion sedan had its strongest April ever. And the compact Focus continued its recent sales strength, up 13% versus year-ago numbers. Sales of the subcompact Fiesta were down, but Ford officials suggested that that was due to the strength of the Focus, and pointed out that the current Fiesta-to-Focus sales ratio was roughly in line with industrywide subcompact-versus-compact sales.

  • Fuel-efficient pickups. Ford has offered a turbocharged V6 version of its mainstay F-150 pickup for a while now, and it has recently posted big sales as buyers seek fuel efficient options. Overall, F-series pickup sales were up 4% in April, a surprise given high gas prices. For that, Czubay credited the "EcoBoost" turbo V6 package, saying that sales in April were nearly double last year's totals.

  • Efficient SUVs. While sales of the about-to-be-replaced compact Escape SUV were down -- its production has ended, and Ford's production lines are now being retooled to produce the all-new 2013 version -- sales of the Edge and Explorer were strong. Year to date, Explorer sales are up 12% over very strong year-ago results.

Long story short, Ford's best recent products -- the Focus and Explorer -- continue to post strong results, and its mainstay trucks have held their ground. But Ford's market share for the year is still down over year-ago numbers, as competitors from Chrysler to Toyota (NYS: TM) posted solid year-over-year gains, and that has raised some concerns.

About that loss of market share...
Ford officials have suggested in recent days that the company's loss of market share is due to supply constraints -- simply put, that they can't make enough vehicles to meet demand. The company has announced that it is adding extra shifts, and plans to add an additional 400,000 vehicles to this year's production plan, starting this quarter.

But Ford's own data raises questions with that line of argument. First, its inventories were up a bit: 66 days' supply in April, versus 58 days' worth in March. Second, and somewhat surprisingly, Ford's fleet sales were up in April relative to its total. Ford sales analyst Erich Merkle said on Tuesday that fleet sales represented 37% of its April totals. Fleet sales are, generally speaking, less profitable than retail sales, and conventional wisdom would suggest that an automaker with constrained capacity would focus on the most profitable sales.

But, Ford officials pointed out that looking at fleet sales on a month-to-month basis can be problematic. Fleet sales in any given month are often the result of commitments to major customers that are made months in advance. What's more, Ford's fleet sales so far in 2012 are down a bit. Merkle noted that the company's fleet sales for the year to date represent 33% of the company's U.S. total, down a bit from 34% in the year-ago period. Additionally, Merkle pointed out, Ford's (more profitable) commercial fleet sales are up, while its (less profitable) rental-car sales are down.

That's a fair argument, and we might well be able to write the decline off to capacity constraints -- coupled with some competitive pressures from post-tsunami Toyota's resurgence -- once all is said and done. But speaking as a Ford shareholder, I'm not completely reassured.

Is it time to worry about Ford's "engine"?
So should shareholders worry? Not yet: Ford's first-quarter profits in what CEO Alan Mulally calls the company's "engine," its North American division, were the company's highest in many years. Clearly, whatever the Blue Oval is doing in the U.S. market has been working pretty well. But while General Motors' (NYS: GM) recent sales declines can be written off to an aging fleet of products, Ford's is a little harder to understand -- and it'll bear careful watching as the year continues to unfold.

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At the time thisarticle was published 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 serviceshave recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. 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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