How the New 2016 Ford Explorer Is Boosting Ford’s Profits – Motley Fool

Posted: Saturday, August 08, 2015


Ford gave its popular Explorer an overhaul for 2016. The refreshed SUVs have been selling very quickly. Source: Ford Motor Company.

Ford (NYSE:F) reported its U.S. sales numbers for July this past week, and it beat some expectations with a solid 4.9% year-over-year sales increase. Ford fans and investors were especially cheered by a 4.8% increase in sales for the F-Series pickup line. The F-Series had been posting sales declines since February, held back by shortages of the new 2015 F-150.

The F-Series is a huge driver of profits for Ford, and news that its dealers are close to getting full stocks of the new F-150 is very good news indeed for investors. But there’s another story in Ford’s sales numbers that deserves closer attention: Its SUV sales are also looking very strong.

Ford’s SUVs drove big profits, while F-150 sales were down
When we talk about Ford’s profits, the F-Series pickups get a lot of attention. And for good reason: They’re very profitable products, and Ford sells a whole lot of them.

But SUVs are also very profitable. Aside from the truck-based Expedition, all of the SUVs that Ford sells in the U.S. share some engineering with its mass-market sedans. But they often sell for quite a bit more than their sedan siblings, especially when loaded up with the high-tech luxury options that many buyers choose.

That translates into big profits for Ford on each sale. We saw that last quarter when Ford posted a big profit, while F-Series sales were down. 

But the story could be even better in the third quarter, because Ford is selling a lot of SUVs right now — at especially good prices.

The new Explorer and Edge are selling very quickly
The numbers from Ford’s July sales report are impressive. Sales of Ford’s Explorer were up more than 27% last month. The Edge posted a 17% year-over-year sales increase, and sales of the compact Escape jumped 10%.


The 2015 Ford Edge is all-new from the ground up, and much improved. Sales have soared since its release earlier this year. Source: Ford Motor Company.

Those are all great numbers, but pay special attention to the Edge and Explorer. The Edge is all-new for 2015, and the Explorer was significantly refreshed for its 2016 model year. Both started shipping earlier this year. It’s the new versions that are selling like hotcakes right now.

That’s significant. Generally speaking, in the auto business, profits are highest (or put another way, discounts are lowest) when products are new and demand is strong. 

One measure of demand for a vehicle is “days to turn,” or the number of days it takes a dealer to sell a particular vehicle after it’s delivered, on average. Thirty days to turn is considered pretty good. But Ford executives said that last month, the Edge “turned” in 18 days, and the Explorer in 13. When new vehicles are selling that quickly, that almost always means that prices — and profits — will be very strong.

Another SUV that’s selling quickly
As good as those numbers are, there’s one that’s even better. The Lincoln MKX SUV is also all new; it shares underpinnings with the Edge, and it’s built in the same factory. Its sales numbers are much lower than the Fords, but still — MKX sales were up 27% last month, and it’s turning in just five days.

Long story short: With one-third of the third quarter now in the books, it looks like Ford’s new SUVs are again putting it on track for another fat profit in North America.

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