When oil priced tumbled last year it was supposed to be a major boon for car sales and, indeed, courtesy of car loans whose rejections rates have never been lower [6]and with LTVs for loans on used cars sold to subprime borrowers now a record high 150% [7], some such as government-favorite GM benefited greatly, with sales of Chevy Silverado jumping a solid 18.4% June. Others, however, have been struggling: sales of Ford's top-selling and most profitable line, the aluminum-bodied F-150, were down 8.9% last month as Ford's market share of big-pickup trucks dropped to 28% from 33% one year ago.
Ford's response: a huge push to incentivize buyers, in the form of discounts that can exceed $10,000 on its new aluminum-bodied F-150 pickup, which has been losing sales and market share this year even, as Bloomberg reports [8], "the automaker works to build inventory on dealer lots."
As USA Today [9]adds, "in a move that sometimes spells sales trouble, Ford has started offering discounts of up to $10,479 [10]its most important vehicle, the F-150 pickup."
"The discounting is unusual because the highly revised 2015 F-150 is relatively new in the market. The current version has an aluminum body to save weight, and thus fuel. Not only is the F-150 the nation's best-selling vehicle, but it is also considered one of the most profitable, at least compared to cars."
Taking a page right out of the AAPL playbook, Ford officials have blamed tight supplies for sales droop, but analysts aren't so sure. "The truck hasn’t sold up to expectations for the most part,” Akshay Anand, an analyst at auto researcher Kelley Blue Book, said in an e-mail. “This may be a hint that in certain parts of the country, the issue might just be more than supply."
“What will be more telling is whether the incentives start to go out nationwide,” Kelley Blue Book’s Anand said. “If limited to higher end trims and packages, this may not have a huge effect for the moment, as a truck still makes plenty of profit.”
Earlier this year, Ford cut spending on marketing promotions per vehicle 16% to an average $2,736, according to Autodata, which found smaller increases by General Motors Co. to $3,427 and Fiat Chrysler Automobiles NV to $3,277.
What is surprising is that Ford has said it had only half its normal inventory of the F-150 on dealer lots in June and won’t have a full supply until the end of September: as such one would be led to believe the supply shortage would serve as an artificial stimulus, but the significant price cuts suggests lagging demand may be a bigger culprit.
Sure enough, as Bloomberg notes, "F-Series sales fell 2.4 percent in the first half and have dented Ford’s earnings. The trucks were the top-selling vehicle line in the U.S. for the 33rd straight year in 2014. The new F-150’s fuel economy increased as much as 29 percent, primarily because the use of aluminum trimmed the truck’s weight by about 700 pounds (318 kilograms)."
Hiking incentives would be a logical next step to support declining demand, even if the company is eager to dispel the impression that the US consumer, despite an overabundance of cheap credit, may have hit a saturation point (or simply refuses to spend more money even if funded with zero-cost debt):
Improving inventory of F-150 is allowing Ford to offer more competitive incentives as part of its Summer Sales Event promotion, Erich Merkle, the company’s sales analyst, said Wednesday. He said overall incentive spending is down from a year ago and that the truck is selling for $44,100 on average, the highest transaction price in the segment.
Asked July 1 about dealer ads touting $10,000 discounts on F-150, Ford’s top U.S. sales executive said those incentives were being offered by individual dealers.
“I can tell you that that number of $10,000 is commonly used by our competition,” said Mark LaNeve, vice president of U.S. marketing, sales and service. “So you’ve probably seen a competitive response by a given individual dealer.”
Perhaps, but that does not explain Ford's recent sales weakness which have not been seen elsewhere: its competitors continue to outperform with sales of Fiat Chrysler’s Ram pickup rising 4.3% in the first half, while GM's Silverado, as noted above, saw an 18% jump in sales last month.
And yet, it may not be Ford's flagging sales but GM's continued outperformance that is the outlier. For a clue as to what may be the catalyst, we go to GM's latest sales release [11]in which we read that:
State and local government sales were up 6 percent in June, with full-size pickup and Tahoe PPV deliveries more than doubling. State and local government sales are up 19 percent calendar year to date.
So is the government the ultimate source of subsidies to GM's income statement? Well, why not: it was the government that "subsidized" GM's balance sheet in 2009 with a bankruptcy process that put traditional Chapter 11 on its head. Is it that difficult to imagine that the government will do everything in its power to keep its golden auto child thriving, even if it means being on of the primary sources of demand? Those who are skeptical are urged to read our article from April: "The "Mysterious" Source Of Surging Demand For GM Cars, Revealed [12]", and for the time pressed, here is the punchline: the US government.
