F-150 sales in August vindicate Ford’s pickup overhaul
It has taken a year, but inventories of the F-150 are approaching normal levels and Ford was rewarded with a 5% sales increase in F-Series sales in August, which contributed to a 6% hike in overall sales.
The results underscore two things: the importance of the truck to Ford’s overall sales in the U.S. and perhaps vindication of a calculated gamble to switch to aluminum for a truck that had a steel body for more than seven decades.
Ford U.S. sales chief Mark LaNeve said Tuesday that sales of 71,332 last month made it the best August for the F-Series since 2006 and exceeding 70,000 in sales has happened only seven times in the last eight or nine years.
Signs of success come after a year of skepticism and falling sales, market share and profits
It was Aug. 25, 2014, that Ford began implementing a detailed demolition plan that started by closing the Dearborn Truck assembly plant as part of a calculated gamble to switch to an aluminum body for a truck that had been made of steel for a century.
The changeover has been costly.
Ford invested $359 million to transform Dearborn Truck and an additional $484 million at the adjacent Diversified and Stamping facilities. Another $1.1 billion was spent at the Kansas City, Mo., plant that makes the F-150 and Transit commercial van.
The changeover threw a wrench into the production schedule for a full year, with months of downtime followed by the slow and careful launch of a complicated vehicle.
There has been a financial toll.
After losing production at the Dearborn plant in the fourth quarter and Kansas City in the new year, Ford earned $924 million in the first quarter, down almost 7% from the previous year.
Revenue of $33.9 billion was down $2 billion due to heavy launch costs; Chief Financial Officer Bob Shanks said F-150 volume was down more than 50% — or a whopping 60,000 trucks — which have an average transaction price in excess of $40,000. F-Series trucks account for 90% of Ford’s global auto profits, according to Morgan Stanley.
Shanks said if Ford had not lost 60,000 pickups and 15,000 Edges due to changeovers, the company would have increased revenue by $1 billion in the first quarter and operating margin of 6.7% in the first quarter would have exceeded 10%.
CEO Mark Fields has said pretax profit will grow by as much as 51% this year with resumption of full production of the F-150. Shanks said market share dips will be restored by the end of the year.
There has also been a toll on Ford’s reputation.
Critics were understanding at first, careful to note Ford’s sales woes were simple math: If dealers only have half their normal allotment of trucks, sales inevitably will be down. And when a single product accounts for almost a third of total sales, it drags down the company’s fortunes as a whole.
But with each passing month, patience wore thin. Critical reports in the media and analyst notes suggested the aluminum truck was not resonating with buyers. Incentives were needed to grease sales.
General Motors fanned flames of discontent with a clever advertising campaign for its Chevrolet Silverado that touts the strength of steel.
Fiat Chrysler touted the fuel efficiency of the Ram; the diesel-powered version gets better mileage than the F-150 despite its improved fuel economy with the 700 pounds of weight loss courtesy of the aluminum.
On Tuesday, LaNeve said August inventories were approaching year-ago levels. The month ended with about 90,000 in stock, or a 55 days’ supply, enough to offer incentives where needed to be competitive, and enough to start filling fleet orders which were put off to later in the year. In August, 80% of F-150 sales were retail; only 20% were fleet. LaNeve said the normal split is about 60-40.
“Ford might be getting its groove back,” said Michelle Krebs, senior analyst for Autotrader.