Will Toyota Blow Past Ford?
Toyota has long outsold Ford on a global basis, of course. But since April of 2010, when Ford regained second place in the U.S. auto market, Toyota has trailed the Blue Oval in sales here in the U.S. -- often by significant margins.
Lately, those margins have narrowed as Toyota has gained ground. Will Toyota surge past Ford? And if so, what does it mean for the Blue Oval?
Why is Toyota catching up?
It's no secret that Toyota's recovery from last year's tsunami is going well. The Japanese auto giant has roared back with several strong new models and a string of huge year-over-year monthly sales gains.
But despite its increasing strength, Toyota's year-to-date sales in the U.S. have so far trailed those of both General Motors (NYS: GM) and Ford. But the gap is closing: Toyota's U.S. sales in September were just 3,066 vehicles behind Ford's.
For those who have followed Ford's renaissance, that may come as a surprise. Ford's products have come a long way in the last few years: Their quality is now roughly on par with Toyota's, and recent models like the Focus have matched or outpaced rival Toyotas in head-to-head comparison tests.
So why is Ford losing ground to Toyota in its home market? There are a couple of factors at work:
- Ford production constraints. Ford has said that North American production of several key models is close to being maxed out, with some factories already working around the clock. To significantly increase production of hot models like the Focus and Explorer, Ford would have to make big investments in additional production lines -- as would its suppliers, some of which are still struggling to recover from the economic crisis. Ford CEO Alan Mulally is likely to remain cautious about such investments until it's clear that the U.S. auto market is strong enough to support them long-term -- and until he can convince Ford's supply chain to follow the Blue Oval's lead.
- Pent-up demand -- for Toyotas. The March 2011 earthquake and tsunami in northern Japan did tremendous damage to several of Toyota's suppliers. That led to global shortages of some Toyota models lasting until late in the year. While some of Toyota's longtime customers turned to well-regarded alternatives from Hyundai (NASDAQOTH: HYMTF.PK), GM, and Ford, many simply chose to wait. Now that Toyota's U.S. dealers are well-stocked, those customers may be returning.
Ford has enough of a lead over Toyota to maintain its second-place ranking through the rest of 2012. But come next year, Toyota could well breeze past Ford. What would that mean for the Blue Oval?
Not a key focus for Ford
While nobody at Ford will be happy about falling back into third place, a war for market position just isn't in the cards. To understand why, it's helpful to look at CEO Alan Mulally's strategy, the "One Ford" approach that served as a roadmap for the company's turnaround.
A key tenet of "One Ford" is, as Mulally often says, matching supply to real demand. "Real demand" means demand at a price that is competitive but will ensure a good profit for Ford. Ford is willing to use incentives to fine-tune pricing, but it's unlikely to cut prices to the bone to challenge Toyota.
Ford has repeatedly shown -- recently, in Europe -- that it is unwilling to discount heavily to gain (or hold) market share. In fact, Ford's maxed-out plants may already be leading it to indirectly increase prices here in the U.S. by reducing incentives.
The upshot is this: Ford is likely to take a conservative approach to expanding its production capacity. It's possible that Toyota will outsell Ford in the U.S. next year, in large part because (at least for the moment) Toyota is able to build more vehicles for this market than Ford. But so long as Ford continues its disciplined approach to pricing, its profits in North America should continue to be strong.
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The article Will Toyota Blow Past 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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