Even Texas drivers are getting into the car-based vehicles
11:29 PM CDT on Monday, July 16, 2007
Moribund Ford Motor Co. appears to be stirring again.
Although the struggling automaker’s sales are still lower this year than last – when it lost $12.7 billion – the company has recorded 10 straight months of sales increases, aided considerably by its Texas dealers.
Moreover, Ford has two fairly hot new products, the Ford Edge and Lincoln MKX crossovers, that are helping reshape the truck-dependent manufacturer. In June, the Edge was the top-selling crossover in the U.S., Ford says.
Ford
The Ford Edge crossover vehicle is helping reshape the truck-dependent manufacturer.
“It’s an indication that Ford is beginning to develop some product momentum,” said George Pipas, the automaker’s sales analysis manager.
Even more encouraging for the company, dealers nationwide sold slightly more cars and car-based crossovers in May and June than they did trucks and large SUVs, Mr. Pipas said.
That’s a significant change at a company long reliant on big pickups and SUVs, analysts say. When sales of those trucks began to falter two years ago, Ford’s mounting losses forced it to cut 25,000 jobs and close 10 plants. More reductions and closures are likely.
Ford still depends on big trucks for cash flow, but it’s starting to adjust to a future in which full-size pickups and SUVs will play smaller roles, and customers will care far more about gas mileage than towing capacity.
“The customer of the 21st century has changed,” Mr. Pipas said. “The world has changed. We’re not looking to trucks and SUVs to save us. Current cash flow may come from the F-150, but future buyers will come from cars and car-based crossovers.”
Through June, Ford’s retail sales were down 8 percent, partly because the company is selling fewer cars and trucks to rental fleets this year. And analysts say the company remains on pace to burn through $17 billion over the next several years as it reduces its manufacturing operations and substantially reshapes its product line.
But sales nationally and in the automaker’s critical Southwest region suggest that the transition from old-world truck builder to 21st-century manufacturer is already happening.
“If you look at retail sales only, 70 percent of our sales in 2004 – before the Fusion [midsize sedan] and the Edge [crossover vehicle] – were trucks and truck-based SUVs,” Mr. Pipas said. “This year, it’s down to 51 percent” nationwide.
For now, it’s a classic good news, bad news story. As Ford strives to offer more cars and car-based vehicles to meet changing market demands, its revenue could continue to fall. Trucks and SUVs have been Ford’s cash generators for decades.
“Just look at our income statement to see how painful that is,” Mr. Pipas said.
Still, some analysts see positive signs in the red ink because Ford – like General Motors Corp. last year – seems to be moving in the right direction.
“Obviously, they are looking for bright spots,” said Wes Brown, an analyst at Los Angeles-based Iceology, which is in discussions about helping Ford with its California sales strategy. “But what has to be encouraging for Ford’s new models is they are starting to see some decent numbers building. They are not anywhere near as high as they want them to be. But at least they are seeing signs that they are appealing to a customer base.”
Ford and Lincoln, for instance, scored high in recent J.D. Power surveys on quality and appeal.
What the company needs now are a few high-volume vehicles that will generate healthy profits, Mr. Brown said. The Escape, Ford’s compact crossover SUV, will probably record sales of more than 200,000 this year, as will the Focus compact sedan. But the Fusion midsize sedan looks like a 150,000-volume vehicle, and the Edge might hit 150,000 this year.
“The Edge numbers are great, but if it had been Explorers instead, Ford would have made a ton of money,” Mr. Brown said.
In Ford’s critically important Southwest region – Texas and Oklahoma – dealers are doing slightly better than their Ford colleagues nationwide.
Through June, retail sales in the region were down 5 percent from the first half of ’06, compared with 8 percent for Ford’s overall sales in the United States. The region’s share of Ford’s national sales has increased from 13 percent last half to 13.5 percent, said Dave Mondragon, general manager of the Southwest region.
Those Texas trucks
Ford dealers in the Southwest continue to sell more trucks and full-size SUVs than dealers in other regions – meaning that they are probably contributing heavily to Ford’s revenue as both its biggest sales region and largest truck sellers.
But the transition to crossovers is apparent even here, Mr. Mondragon said.
“We are clearly seeing a shift to CUVs because of their better fuel economy,” Mr. Mondragon said. “That said, the full-size SUV segment in Texas is still huge. It is still growing. We’ll see a leveling off, but I don’t think we’ll see a huge drop.”
Nonetheless, the shift is evident. Lincoln Mercury dealers, for example, are selling nearly as many MKXs now as truck-based Navigators.
In June of last year, only 38 percent SUV-type vehicles Ford sold in the region were car-based crossovers, and 62 percent were traditional truck-based vehicles. This June, 46 percent were crossovers and 54 percent were truck-based, Mr. Mondragon said.
“I feel real good about the second half of the year,” he said. “If we just hold our volume in trucks and pick up incremental sales in cars and crossovers, we’ll cut the [sales] shortfall to 1 percent in December.”
The big question for dealers is whether the sales of car-based vehicles are all-new business or customers replacing truck-based vehicles with something more economical.
“We do not have the [profit] margins we once did, and the highest-margin vehicle we have today is still the F-series pickup,” said Sam Pack, who owns Five Star Ford in North Richland Hills, Sam Pack’s Five Star Ford in Carrollton and Ford Country in Lewisville. “There will probably be less profit for the dealer and for the manufacturer as we make this transition.”
But even if the new vehicles don’t contribute much additional revenue – and dealers will get two more models before the end of the year, an ’08 Focus compact and ’08 Flex crossover – they should still help dealers maintain their customer base, Mr. Pack said.
“There is optimism now,” he said. “The real challenge is what size will the auto industry be going forward, and will we get our share of it?”
‘Enthusiastic about cars’
Rockwall Ford had a “great” month in June and expects more, said Ron Kutz, president of Kutz Automotive Group, a division of Group 1 Automotive that includes the Ford dealership.
“We had some excitement and enthusiasm,” Mr. Kutz said. “We’re heavily concentrated in trucks. The fact that I’m enthusiastic about cars says something. At least we’ve got something to talk about now.”
Randall Reed, the new owner of Prestige Ford in Garland, said he would not have bought Prestige or his other Ford dealerships if he had not been confident about the new cars and crossovers headed to market. Besides Prestige, Mr. Reed owns Park Cities Ford and Park Cities Lincoln Mercury in Dallas, as well as Ford dealerships in the Houston area.
“Five years ago, [chairman] Bill Ford made a commitment to quality, and he has been a man of his word,” Mr. Reed said.
“The next generation of vehicles from Ford will be edgy and fuel-efficient, and people will get it. I think we have made huge strides.”
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