Ford‘s (NYSE: F ) F-Series line, which includes the super-popular F-150 pickup as well as its Super Duty siblings, is arguably the Blue Oval’s most important product line anywhere in the world.
Ford may sell more Focuses, and its compact and midsize cars may be much more familiar sights in most of the world than the brawny pickups that are America’s best-selling vehicle line. But it’s the F-Series pickups that drive the bulk of Ford’s profits in North America — and with Ford investing to expand in Asia, and restructuring in Europe, those North American profits are carrying the company right now.
For investors in Ford stock, F-Series sales are an important indicator of the company’s health. But those sales were down 11% last month, while Fiat Chrysler‘s (NASDAQOTH: FIATY ) Rams and General Motors‘ (NYSE: GM ) Chevy Silverados gained market share at Ford’s expense.
Is it time for Ford investors to worry? Not necessarily. As Motley Fool senior auto specialist John Rosevear explains in this video, there are extenuating circumstances here — and while Ford’s pickup sales may be down, its profits might still end up being strong.
A transcript of the video is below.
John Rosevear: Hey Fools, it’s John Rosevear, senior auto specialist for Fool.com. Sales of Chrysler’s Ram pickups were up 12% in June, sales of GM’s Chevy Silverado were basically flat, and sales of Ford’s F-Series, the longtime market leader, were actually down 11% on the month.
Now, we should say up front that this was a funny year-over-year comparison, June of 2013 had more selling days, meaning days that aren’t Sunday, days when car dealers are open, than June of 2014 did, so really all the automakers lost two key days of sales in the year over year comparison. So it’s not a surprise, for instance, to see that Chevy Silverado sales were flat year over year, that works out to a gain in terms of the daily selling rate.
But Ford was down about 7500 trucks on the month, and that’s a drop no matter how you slice it. So what’s going on here? Are the Ram and the new Chevy finally starting to eat the old F-150’s lunch?
If you listen to what Ford says, it’s not that simple.
I recently talked to Ford’s North America chief Joe Hinrichs, who is also Ford’s top manufacturing expert, and he explained what’s going on with the F-Series pickups right now. Ford is gearing up to change over the two factories that make the F-150 to make the all-new 2015 model, which has aluminum body panels.
Aluminum-bodied vehicles require substantially different manufacturing techniques because aluminum body panels are bonded and riveted, basically assembled using high-tech glue, instead of being welded like the current steel panels. That means Ford needs to install and test a lot of new machinery in the plants in order to build the new trucks, and it needs to train all its workers to build them, and that’s going to take time.
The two factories were shut down for three weeks in the first quarter, they’ll be shut down for much of July, and they’ll be shut down again for a total of seven more weeks by the end of the year. Now, the factories will be able to make up some of the lost production, but Hinrichs says that Ford will lose 90,000 units of production, 90,000 F-Series trucks that they won’t have to sell that they probably could sell.
But they want to make sure that all the Ford dealers have plenty of trucks to sell right up to the moment when the shipments of all-new 2015 trucks start to arrive late this year, so what are they doing? Well, they’re managing supply and demand the old fashioned way.
GM and Chrysler have been fairly aggressive with incentives on their trucks, but Ford has ratcheted theirs down. Ford US sales chief John Felice said last week that Ford’s average per-truck spending on incentives in June was down about $800 from last year, well below $4,000, that’s a big drop and it definitely cost them some sales.
Now what Ford is probably hoping is that the sales they lose are the ones to the most price-sensitive buyers, so that they can get the best prices possible on the trucks they have and keep their profits strong, I think they’ll probably be able to do that but we’ll know a lot more when we get Ford’s second-quarter earnings numbers in a few weeks. We’ll talk about this again then, the F-Series pickups are probably the biggest single factor in Ford’s profits right now. Thanks for watching.