Ford's New Models Are Hitting Their Stride


On Friday, Ford reported strong February sales, with total deliveries up 9% year over year. One thing that was particularly notable about the report was that Ford achieved very strong sales of the Escape crossover and Fusion midsize sedan, two major products that were refreshed last year. While Ford generates most of its profit from the F-Series line of full-size pickups, the Escape and Fusion are critical products for Ford as it tries to diversify its product lineup. This is because the crossover and midsize car segments are two of the largest segments in the U.S. auto market (with the midsize segment recently becoming No. 1).

Month in review
Ford's F-Series trucks had another strong month in February, with sales up by 15% to 54,489. However, the Escape and Fusion were the real stars of the show. Escape sales grew 29% to 24,110, while Fusion sales grew 28% to 27,875. The Fusion's gains were particularly remarkable given that the car's February 2012 sales were already a record high for the month.

Both strong performances came after similarly good results in January. Escape and Fusion both generated record January sales this year, with Fusion up 65% to 22,399 vehicles. It seems that car buyers are shrugging off Ford's recent quality control problems: The new Escape was recalled four times in 2012, while the Fusion was recalled twice. Fortunately, there have been no new recalls for either model since early December, which should reassure customers.

Fusion gaining traction
While the Escape and Fusion results were both very impressive, the Fusion's growth is probably more important at this point. The midsize car segment was the largest in the U.S. last year, and it has long been dominated by the Japanese automakers. Toyota has built a massive following for its Camry midsize sedan, which has been the segment leader for a long time. The Honda Accord has also performed well and typically takes the second spot. In 2012, the Fusion was the fourth-best-selling midsize car in the U.S., with 241,263 units sold. The Camry led the segment with 404,886 sold, followed by the Accord with 331,872, and the Nissan Altima with 302,934.

In 2013, Ford has vaulted over Nissan into the third spot in the midsize market: Fusion outsold the Altima for the second straight month in February. While Nissan's February Altima sales total of 27,725 put it only 150 vehicles behind Fusion, it is still impressive that Ford has quickly closed what was a 20% gap in 2012. Moreover, the Honda Accord's grip on the No. 2 slot is becoming tenuous; the Accord outsold the Fusion by only 124 units last month. The Toyota Camry maintained a significant lead with 31,270 units sold, but Fusion has certainly come within striking distance of the category leader.

While the overall numbers for Fusion sales are impressive, they do not tell the full story. As Ken Czubay, Ford's vice president of U.S. sales and service, stated on the company's sales conference call: "Fusion is achieving strong momentum in markets where our share has historically been lower, such as Florida." He also noted that Fusion sales more than doubled year over year in the Los Angeles and San Francisco metro areas, and is turning at the fastest rate in California, a market that has typically been weak for the Detroit Three. By bringing new customers into Ford dealerships, the Fusion will probably contribute to the brand's overall momentum in these critical domestic markets, creating a "halo effect."

Looking ahead
Ford has been planning to ramp up Fusion production in 2013, and the strong sales pace over the past two months suggests that there would be a market for additional supply. Ford is investing over $500 million in its Flat Rock Assembly Plant and adding a second shift (and 1200 jobs) to begin production of the Ford Fusion there. (Thus far, the Fusion has only been produced at Ford's plant in Hermosillo, Mexico.) Production of the Fusion at Flat Rock is expected to begin in July.

With a second source of supply for the Fusion, Ford will have the capacity necessary to chase the Camry for the top spot in the midsize car segment. Moreover, the Fusion probably has what it takes to overtake Camry from a quality and value perspective. U.S. News and World Report ranked the 2013 Fusion as the best midsize car for the money and the 2013 Fusion Hybrid as the best hybrid car for the money. Reviews of the new Fusion have generally been quite positive, and its more aggressive styling (compared to the conservative designs of its Japanese peers) could be an important draw as well.

The Ford Escape is already a segment leader, but the new Fusion's success is more impressive, as the midsize segment has been dominated by the Japanese automakers for a long time. Ford's success in this critical segment offers proof that Detroit automakers can finally compete with foreign competitors across the full spectrum of cars, trucks, and SUVs. Over time, this should boost Ford's market share, while reducing its reliance on the F-Series trucks to generate profit.

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Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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