Most investors remember Ford Motor Company ‘s (NYSE: F) dark days in Europe following the past recession, when the automaker burned through billions of dollars in profits. Fortunately for investors, those days are in the past , and the automaker has posted nine consecutive quarterly profits through the second quarter of 2017. Despite its recent financial success, Ford’s sales dipped slightly last month in its traditional 20 European markets (the “Euro 20”). But what’s driving the decline?
By the numbers
Before we get to some of the highlights and explanations, let’s check the raw data. Starting from the top: Ford’s total Euro 20 vehicle sales declined 2.4% to 73,100 units in August. That fueled a market-share decline of 50 basis points, to 7.1%. If you’ve been keeping track of Ford’s trends in Europe, it’s no surprise that the driving force behind the decline is its passenger-vehicle sales, which were down 6.1% to 50,600 units. Despite the August decline and summer softness in sales, Ford’s year-to-date sales through August in its Euro 20 markets are up 2.2% compared to the prior year.
Ford’s passenger-car sales declined in Europe. Image source: Ford Motor Company.
Although Ford’s passenger-car sales weighed on its totals, there were two bright spots in the overall data. The first was in commercial-vehicle (CV) sales: Ford continues to be the No. 1 CV brand in Europe. Ford’s CV sales were up 9.3% during the first eight months of 2017 and were up 7.3% in August alone. That helped drive Ford’s CV market share 80 basis points higher, to an impressive 13.5% of its Euro 20 markets.
Another bright spot was in Ford’s SUV segment, which historically hasn’t been a huge part of the automaker’s story overseas because Europe favors smaller vehicles. But consumer tastes are welcoming larger vehicles, and Ford’s SUV sales were up 21.3% in August to 14,200 units. The increased demand was driven in large part by the EcoSport, Kuga (Escape), and Edge. Furthermore, Ford’s SUV sales have been strong all year with a 26.7% gain, compared to the prior-year date.
Things to note
One of the major takeaways for investors was the driving force behind Ford’s sales decline: the Fiesta . The story over the summer was how the production ramp-up and changeover to the new Fiesta weighed on sales, which will turn around once production reaches capacity. Investors might not think one vehicle changeover and production speed bump could be to blame, but look at Ford’s sales volume per vehicle in the chart below:
Data source: Ford Motor Company. Chart by author.
Another takeaway is that while Ford’s passenger-car sales are declining, management is making an effort to focus on more profitable sales of high-series vehicles and performance cars, as those segments generally help boost average prices and profits. In fact, Ford’s high-series vehicles — which include Titanium, Vignale, ST-Line, ST and RS — generated 66% of the company’s passenger-car sales last month, a 4.4% increase compared to the prior year. Ford’s performance cars — the Fiesta ST, Focus ST and RS, Mustang, and GT — are up 5% year-to-date through August.
Ford’s nine consecutive quarters of profits in Europe weren’t a fluke. Management continues to push high-end passenger cars and SUVs. And in the current two-year window, the company expects nearly 80% of vehicles to be all-new or significantly refreshed, which should support sales: New vehicles sell better.
Sure, Ford’s August sales weren’t thrilling for investors. But once the Fiesta production reaches capacity, expect that story to turn around before the calendar flips to 2018.
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Daniel Miller owns shares of Ford. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy .
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