Ford's Pickups Drive Big Profits
Ford posted a first-quarter profit of $1.6 billion on Wednesday, a good result that was better than Wall Street expected. That profit was driven by very strong earnings in the company's North American division. Ford North America is hitting on all cylinders right now, as recent models like the Fusion and Escape are doing very well with buyers.
But as always with Ford, its F-Series pickups are a big part of the story.
Ford's cars are better than ever, but its pickups might still be its most important products
In the U.S., Ford sells more of its F-Series pickups -- the popular F-150 and its heavier-duty siblings -- than any other vehicle. In fact, it's the best-selling vehicle in America and has been for decades.
Lots of people will tell you that Ford builds a good truck. And while its No. 1 sales ranking occasionally benefits from rival General Motors' insistence on splitting its full-sized pickup sales between the Chevrolet and GMC brands, there's no doubt that it's an exceptionally popular and successful product.
What is somewhat less well known is that it's a very profitable product as well. Some of that profit comes from sheer numbers: Ford sold 168,843 F-Series pickups in the U.S. in the first quarter of 2013, a 17.4% increase over the first quarter of last year. That's almost as many sales as all of Ford's popular SUVs managed -- when added together.
But it's also true that pickups in general have very good profit margins. Ford's exact profit per pickup sold is a closely guarded secret. But there's little doubt that it's good: One leading Wall Street analyst said last year that the F-Series might represent as much as 90% of Ford's global profit.
Ford made $2.4 billion in North America in the first quarter. (Ford's total profit was lower because of losses and spending overseas, where Ford is still restructuring and expanding.) Clearly, a lot of those dollars came from pickup sales.
But here's the interesting thing about Ford: As good as that North America profit number was -- and it was Ford's best in more than a decade -- it could have been even higher.
Investing more of Ford's profits for future growth
Ford's North American profit was very strong, and its profit margin was also very good at 11%, a big number for a mass-market automaker. But some analysts had expected a slightly higher profit, and a slightly higher margin -- in part because of Ford's strong pickup sales.
Ford could have arranged to post a higher profit. But its costs were up in the quarter, because the company is plowingmore of its money into developing new vehicles.
Ford CEO Alan Mulally is in the midst of a multiyear push to build more vehicles off shared architectures, or "platforms," an approach that improves quality while reducing costs. This year, Ford aimsto build more than 85% of its vehicles using just its nine global platforms.
Getting that number closer to 100% will improve Ford's financial performance -- and it could improve quality as well. But that takes considerable investment, and Ford is making those investments now.
Ford is also investing heavily in development of the next F-Series, due next year. Given the importance of the pickup line to Ford, it's a safe bet that the upcoming new version is being lavished with attention right now as the company works to finish it up and put it into production.
With new pickups coming shortly from GM and Toyota, and Chrysler's Ram having received an update recently, the F-Series is facing ever-stiffer competition. Expect Ford to spare no effort (or expense) in making sure that the next F-Series is its best ever.
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The article Ford's Pickups Drive Big Profits 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 recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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