Why Ford Won't Beat the Camry
Everybody wants to be No. 1, right?
It often seems that way. That's why, when Ford (NYS: F) rolled out its white-hot new Fusion sedan earlier this month, many analysts and pundits assumed that Ford was aiming to surpass Toyota's (NYS: TM) vaunted Camry, the longtime market leader.
Even CEO Alan Mulally seemed to hint at such a goal as he introduced the new car, citing sales records set by the old Fusion in 2011 and saying, "With this new family of vehicles, we believe we can build on that success."
But as several senior Ford executives have pointed out since the new Fusion was revealed, outselling Toyota's standard-bearer is not actually Mulally's -- or Ford's -- goal.
And believe it or not, that's a good thing.
A new kind of discipline for Detroit
In the bad old days of Detroit, market share was an overwhelming priority for some executives. Battles for tenths of a point of share were fought on every front imaginable, from styling to options lists to advertising to the discounts and incentives that ultimately killed the once-Big Three's profit margins.
These days, industry leaders are singing a different tune. Even executives at General Motors (NYS: GM) , which recently regained the global sales crown, were careful to downplay the achievement, focusing instead on profitability.
But nowhere is the new emphasis on profit over sales titles more visible than at the Blue Oval. Profit and margins are Ford's new priorities -- priorities that the company has chased with relentless discipline since Mulally took the reins in 2006.
That emphasis was driven home in remarks made by Ford marketing chief Jim Farley in the wake of the Fusion's reveal. As he told Bloomberg, "I don't think we're very enamored with being No. 1 just to be No. 1. We're much more enamored with getting the right price point and the right kind of people to buy the car."
Luxury profits at mainstream prices
Ford's emphasis on finding the right pricing, part of its larger effort to enhance the company's overall margins, has been fueled in part by the happy discovery that buyers would pay extra -- often significantly extra -- for luxury options on mainstream models. Ford's compact Focus, which was all-new a year ago, is available with extras like heated seats and elaborate touchscreen controls that until recently were only found in high-end luxury cars -- and would have been unthinkable in a Detroit compact just a few years ago.
Of course, you can still get a plain-Jane model at a good price. But many buyers, downsizing from SUVs as gas prices have risen, have opted for the deluxe versions, which sell with much higher margins. And that has done great things for Ford's bottom line.
Ford has continued that affordable-luxury approach with the new Fusion. The new sedan will be available with Lexus-like high-tech options like electronic aids to keep drivers from drifting out of lanes and assist with parallel parking, as well as a "plug-in hybrid" drivetrain that turns the Fusion into an affordable alternative to the hot new Model S from Tesla Motors (NAS: TSLA) .
And like nearly all Fords, the Fusion comes at all levels with an interior reminiscent of those in much more expensive cars, one that arguably outclasses the (decent) interiors found in the Camry and Honda's (NYS: HMC) Accord. Great interiors have proved to be a key selling point for the Blue Oval, and they've made their way across the company's product line in recent years. Even the rowdy Mustang, which got a refreshed interior a few years ago, has had its cockpit described as "Audi-like" by more than one reviewer.
All of this is one reflection of Ford's emphasis on profit over market share. It would be easy for the company to "de-content" its cars -- to pull out all that nice stuff -- and lower the prices. That would almost certainly help the company sell more cars, at least for a while. In fact, that was GM's approach for many years, and it had a lot to do with why the General was able to retain its leadership of the U.S. market even as its product quality was going down the tubes.
But that's not the road to maximum profit. And it's definitely not the road that Ford has chosen for its new Fusion.
The bottom line
Of course, none of this means that the Fusion won't outsell the Camry, just that sales crowns aren't Ford's priority these days. But it's not likely. While Ford is ramping up production capacity to make 310,000 Fusions in North America this year, Toyota plans to build 408,000 Camrys in its factories in Kentucky and Indiana, according to one industry analyst.
Ford will eventually have the capacity to build 400,000 or so Fusions a year here, but the Blue Oval is unlikely to match Toyota's ability to crank out Camrys anytime soon. That's likely to limit the new car's opportunity for market leadership -- but as long as Ford's making plenty of money on each sale, who cares?
Ford's plan to focus on profitability will pay off for shareholders, who can expect to receive a dividend payment in March. Fortunately, you don't have to wait until then to put the power of dividends to work in your portfolio. In a special new report, Motley Fool analysts have identified "11 Rock-Solid Dividend Stocks," all great additions to a long-term investor's portfolio. This new report is completely free for Fool readers, but only for a limited time, so get instant access now.
At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Tesla Motors, Ford, and General Motors and 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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