Expect More Upside for Ford
Ford is seeing fantastic sales trends in the two largest automotive markets in the world - the United States and China. In the U.S., sales are so strong that the company is struggling to keep up with demand. The market is eagerly waiting to see Ford's new capacity for Fusion sedans and F-150 trucks come online in the third quarter. In China, sales are exploding as the company rapidly gains market share.
Solid demand for cars
In July, Ford increased its year-over-year sales by 11% to 193,715 vehicles, slightly short of the 200,000 vehicles expected by analysts. Retail sales were up by a robust 19%, however. Sales would have been higher if the company could have supplied more Fusion sedans and Escape crossovers.
Fusion sedans are flying off of dealer lots. In July, retail sales were up 70% in California, which is turning out to be this model's hottest market. According to Edmunds.com, Fusion sedans stay on dealer lots for just 29 days on average -- one of the fastest turn rates seen in midsize sedans. Fusion Hybrid vehicles stick around for less than 20 days.
Fiesta and Focus compacts have struck a chord with the Millennial generation. According to research by Polk, Ford has sold 80% more cars to this demographic in the first half of 2013 as compared to the first half of 2009. The Millennial generation is an important target group for the company as they are likely to develop brand loyalty and stick with the Blue Oval, even when they upgrade cars in future.
F-Series sales remain strong
Ford continues to see solid momentum in its bread and butter, the F-Series trucks. In the last three months, the company has sold more than 200,000 F-Series pickups. July sales were up 23% year over year to 60,449 pickups.
The U.S. truck market is booming as life returns to the housing sector. Housing construction propels truck demand, as contractors and builders buy trucks to carry building materials. New housing starts were up 5.9% in July to a seasonally adjusted annual rate of 896,000 , and analysts are expecting around 900,000 starts for all of 2013.
Inventory constraints for popular cars like Fusion, Focus, Escape, and Explorer capped Ford's sales in the last couple of months. Inventories for all of these cars were below 50 days of supply in June and July, below the range of 50 to 60 days that is considered to be the industry standard.
Ford will soon add capacity for Fusions at its Flat Rock, MI, assembly plant, and try to build 240 more Escapes each week from its Louisville, KY plant. To ensure that it has adequate supply for the F-150 pickups that are so in demand, the company will add F-150 capacity at its Kansas City, MO, plant as well.
The company is constantly evaluating ways to maximize its existing capacity, and may consider adding more shifts at plants where the opportunity exists.
China sales are exploding
Ford is on a winning run in China. Its July sales increased 71% year-over-year to 72,834 vehicles with Focus sales up 77%. Ford has sold a total of 480,555 vehicles in China through July, up 50% over 2012. Its market share went up by 1.5 percentage points to 4.3% in the second quarter.
The company owes its success to the popularity of its new cars. In the first half of 2013, it has launched five new models: the Fiesta ST, Ecosport, Focus ST, Kuga, and Explorer. Still to come in 2013 are Fiesta, Mondeo, and Transit.
The Focus continues to remain Ford's best selling car in China. According to research by Polk, China alone accounted for 36% of all Focus sales in the first quarter.
In order to keep its growth trajectory strong, Ford has a "15 by 15" strategy for China, whereby it plans to introduce 15 new or refreshed models in the country by 2015. The company is targeting to achieve a market share of 6% by that time.
Peer round-upThe Detroit Three are having a good run on the back of the strong domestic auto market and expanding truck market. Like Ford, General Motors (NYSE: GM) and Chrysler, owned by Italian car maker Fiat (ADR) (NASDAQOTH: FIATY), are also posting good numbers.
GM increased its sales by 16% in July, with all of its four brands posting double-digit gains . July was the first full month after the rollout of its new pickup trucks, and demand was solid as expected. The company sold 42,080 Silverados and 16,582 Sierras, up 45.2% and 49.3% year-over-year, respectively.
There is also strong demand for small cars like the Chevrolet Spark, the Cruze and the new Impala sedan.
Chrysler's sales grew 11% in July as the company saw year-over-year gains in the Jeep, Dodge, Ram Truck, and FIAT brands. The biggest increase predictably came from the Ram Truck brand, for which sales rose 31% to 32,078 units in July. The Dodge brand increased sales by 18%, fueled by the Dodge Avenger mid-size sedan and the Dodge Challenger.
The company is already maximizing production out of its existing capacity. If the sales trends continue, Chrysler may even consider building new plants in the U.S. to cater to demand.
With the new capacity coming online in the U.S. soon, Ford is poised for more sales increases. The company is on a terrific growth path with the demand for its trucks and cars on the rise. China is an added bonus and can be a big catalyst for the company's stock. As more positive news keeps unfolding, Ford's stock is likely to head further north and create more shareholder wealth.
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The article Expect More Upside for Ford originally appeared on Fool.com.Gaurav Basu has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. 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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