Auto sales in May were anything but rosy, and although there were bigger disappointments among the global car manufacturers announcing monthly sales numbers Wednesday, Ford Motor Company (F) shareholders should be concerned about the state of their company.
Here’s why.
I know, the experts have already proclaimed May to be an aberration caused by two fewer selling days and one less weekend, a time when many cars are sold. On the surface, that seems like a reasonable explanation for the industry-wide slowdown. But it doesn’t explain why Ford sold 26% fewer cars in May 2016 than it did a year earlier. The Ford Fusion, Ford’s top car by volume, saw a 22% decline year-over-year.
Ford stock dropped 3% on the news.
Sure, the Fusion sedan gets a 2017 makeover, but were the changes enough to convince car buyers to wait until summer for a refreshed version that’s entering its fifth year in production? I’m not convinced they were, but writers at Auto Blog magazine (who definitely know more about cars than I ever could) seem to think Ford’s done enough with the new version to convince owners coming off 2014 Fusion leases to take the plunge on another one.
I guess we’ll see. But here’s something to consider.
The Market for F Stock’s Vehicles
Ford sold 306,860 Ford Fusions in 2014 in the U.S., an increase of 3.9% from 2013. According to an article from the New York Times quoting Kelley Blue Book data, Ford’s leasing rate was over 20% in 2014, which would mean something like 61,000 cars could be coming off their leases in 2016. If every one of those car owners leased a 2017 model over the final four months of 2016, leasing would be responsible for 15,000 additional Ford Fusion’s being sold in each of September, October, November and December.
That’s just not going to happen. The Fusion’s best month since Ford introduced its new look in late 2012 is 30,284 cars, a number it achieved in March 2013.
However, to be fair, we could spread those 61,000 cars over a 12-month period starting from this summer’s 2017 release, which would mean a more palpable 5,000 cars per month. Even that, however, is entirely unlikely. In 2015, the Fusion’s overall sales numbers declined by 2.2% in the U.S.; its best monthly increase was last September when 15% more cars were sold year-over-year. Even then it only sold 24,942 cars.
Now, it’s possible that the Fusion could see car owners from other brands abandon their vehicles of choice as a result of the changes to the 2017 vehicle, but you’d have a hard time convincing Fiat Chrysler Automobiles NV (FCAU) CEO Sergio Marchionne of this.
FCAU announced in April that it was laying off 1,300 factory workers until it found a replacement vehicle for the Chrysler 200 at its Sterling Heights assembly plant. The 200, which was completely redesigned in 2014, got off to a fast start in terms of vehicle sales but that momentum has since disappeared as its competitors simply delivered better products and car buyer preferences moved from smaller cars to trucks and crossovers as lower oil prices kicked in.
In the month of May, sales of midsize and small cars declined by 17.2% and 13.4% year-over-year respectively. Year-to-date through the first five months of the year, the two segments experienced declines of 4.5% and 8.5% respectively. None of the car manufacturers did well in these two categories.
So, why am I so negative on Ford? Because optics is everything, whether we’re talking Ford cars or Ford stock.
General Motors Company (GM) is basically imploding at a time when the U.S. auto market, while experiencing some softness, is still pumping out a huge number of cars and trucks. Year-to-date, Ford’s overall sales in the U.S. are up 4%, which translates into 42,436 more vehicles. That’s nothing to be ashamed of. Fiat Chrysler. on the other hand, is up 61,570 vehicles YTD and it has got the 200 absolutely hemorrhaging sales.
It seems to a casual observer like myself that all the online car experts spend most of their time chirping about how poor Fiat Chrysler’s quality is? If that’s the case, shouldn’t Ford be doing better than Chrysler? The fact that it’s not should have shareholders more than a little concerned.
Forget softness in Ford vehicle sales. I’d be more concerned about the softness in Ford stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
