Ford held its monthly sales conference call on June 2, 2009. While scanning a summary of the call, my eyes widened when I read that Ford achieved higher transaction prices in May. Given my continuing confidence that the Federal Reserve will win the battle against fears of deflation, I am always (opportunistically) alert to any evidence that inflation is taking root in the economy. Still...how could a car manufacturer, of all companies, accomplish ANY pricing power in this recessionary environment? I decided to listen to the call to get the full context. It turns out that changes in product mix drove the average transaction price higher: consumers bought well-equipped, higher-end models. Ford also reduced incentive spending although it was not clear to me whether this factored into average transaction price. Ford got a bit stingier, marketed and sold higher-end features, and its customers ate it up even as industry conditions remain tenuous at best. The strength in demand occurred in the last third of May. Here is a summary of the pricing and demand-related commentary from the conference call:
May was Ford's highest volume month since July, 2008.
May was Ford's highest share month in 3 years. It was the only volume brand to deliver year-over-year incentive reductions and still gain market share.
Average transaction price was pretty strong and up from last year, all driven by new product. Customers bought well-equipped models. For example, a very high percentage of customers purchased the 3-series, the sport, the hybrid, and the SEL Fusion, and not as much of the lower-end. Consumers are also going more for well-equipped F-150 trucks. Ford acknowledged that 12 months from now could be a different story.
Average incentives were up $500 for the industry year-over-year (YoY). Ford's incentives were down $200, YoY and month-over-month. Industry incentive spending may have been down $300 month-over-month excluding inventory liquidations.
Ford expects to see a lot of fire sales by competitors, especially as motivated dealers clear out inventory.
Ford raised 2nd quarter production plans by 10K units to 445K; 3rd quarter's plan is for 460K units, a 42K YoY increase.
May results should be interpreted with some caution given the volatility in the marketplace. It is dangerous to extrapolate a straight line from May's success to the rest of the 2nd half. The industry remains fragile.
On a related note, Ford emphasized that it is very earnestly encouraging the government to pass "cash for clunkers" legislation.
On that last point, Ford was clearly trying to deliver a nuanced message: conditions are getting better and are encouraging, but conditions are still bad enough to warrant government assistance. If Ford still needs government assistance then it is too early to get excited about Ford's results. Ford's stock was up 4.6% on the day, and it has now quadrupled from its February 52-week and multi-decade low.
Be careful out there!
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