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Dear Ford Motor Company: I Was Wrong

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#1 ·
Dear Ford Motor Company: I Was Wrong
http://www.fool.com/investing/general/2016/04/30/dear-ford-motor-company-i-was-wrong.aspx?source=yahoo-2&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2

April 30, 2016
The Motley Fool



As a longtime Ford Motor Company (NYSE:F) shareholder, it was great to see an excellent first-quarter result from Detroit's second-largest automaker -- especially after the market had sold off the company, and the entire industry, because of "peak auto sales" concerns. Ford's pre-tax automotive sector results jumped 155% to $3.3 billion in the first quarter. It posted strong gains in the Europe and Asia-Pacific regions, and it rode strong profitability here in North America to set a record for quarterly profits. Not a bad day's work.

However, what I'm arguably the happiest about is what I was wrong about: that a rise in fleet sales would pressure margins. Here's what happened.

Fleet woes, no more?
I've long said that not all fleet sales are bad news, despite many believing that any fleet sale is a margin killer, since that was the case long ago. The way it breaks down is pretty simple: Ford's fleet sales fall into three different categories: commercial, government and daily rental. The first two segments are very profitable business; it's the daily rental sales that are typically seen as less desirable.

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#2 ·
While Motley Fool is generally drivel, I thought this one is at least a topic that has been hotly debated (and many of us just proven wrong).

Either way, excellent job Ford in such incredible margins!!

I have three questions (probably ones that none of us can answer):
1) Is this repeatable (if so Ford will be unstoppable)
2) What would their margins have been without these fleet sales
3) They did have a good comment - Where is Ford in their overall product development cycle vs. GM. Is Ford in somewhat of a lull (which brings us back to question #1)?
 
#5 ·
GM needs to change it's strategy to create a One GM with a global focus based off a core "Global Brand".

That "Global Brand" is Buick/GMC/Holden/Opel/Vauxhall since these brands have global market strength and represent GM in their respective markets.

GM must use Buick/GMC/Holden/Opel/Vauxhall as their "Offensive Line" to use a football analogy (it is NFL Draft weekend).

If GM's global strategy was an NFL offense it should look like

CadillacDenaliGMCHoldenOpelVauxhallBuickCommercial/FleetCorvette
WRTELTLGCRGRTTE/Slot WRWR
Med/HDTruckChevrolet
RB/FBQB

Buick/GMC/Holden/Opel/Vauxhall is a the core of the Offense and provides it's inherent strength with global products being developed and sold as Buick/GMC/Holden/Opel/Vauxhall vehicles for Retail, Commercial, Government and Rental Fleet. This allows for GM to develop a competitive Commercial Van that addresses the need for RHD, various powertrians, various configurations and provides a built in distribution network for Global Buick/GMC/Holden/Opel/Vauxhall Commercial, Government and Rental Fleet sales.

It also allows GM to create competitive Medium Duty Trucks for Global Chevrolet/GMC/Holden Commercial, Government and Rental Fleet sales where GMC becomes GM's Global Truck Brand for sales in Asia, Europe, Middle East and N.A.. GMC would also define a new HD Pickup design for N.A. that extends into Class 4, 5 and 6 where GM is weak and Ford and RAM have gained market share and how Ford makes a lot of it's margins with Class 3, 4 and 5 Super Duty Sales that are quite different than "F-Series" sales.

Where does Chevrolet fit?

Chevrolet is the QB that GM uses to distribute sales of Buick/GMC/Holden/Opel/Vauxhall vehicles for sale where the Chevrolet Brand is strong like N.A. and China, but just like a NFL QB is totally dependent upon the offensive lines ability to provide pass protection and the ability to run the ball.

Cadillac and Corvette provide the sizzle and low volume/high margin sales of Premium Luxury and High Performance vehicles in select global markets.

Buick/GMC/Holden/Opel/Vauxhall provide the backbone of the offense and is the core for profits and when it works together as a team results in maximum yardage gained (Profits) and Market Share (Time of Possession) that will result in a game winning strategy.
 
#6 ·
Maybe I'm missing the point. Except for GM's truck efforts, aren't they already more or less doing (or starting to do) what you mapped out? I don't think GM is ever going to go with a true world brand like Ford (or most other companies), though I'm not sure it really matters except for bragging rights (Ford will always be a #1 seller worldwide where GM can't as they have multiple labels selling the same car).
 
#14 ·
Commercial/Government Fleet sales are a sum of the whole, meaning;

Let's say Power Company X needs 50 trucks. 30 1/2 tons, 10 1 ton Chassis Cabs and 10 19500 GVWR Chassis Cabs.

GM cannot fill the full order.
FCA can but with limited options and truck specs.
Ford can, and any of it's Dealer Network can service the entire Fleet.

Now comes Rentals. Yes a very price point sale.

Fred, Jane, or Pete. Flying into LAX leaving their Benz, Audi, Dodge back home. Rentals put prospective buyers behind the wheel of your product more than any other way!

That is why GM's Fumbling with the Malibu so long is a Big Deal. You never get a second chance at the first impression.

Now I have only had to rent a car 3 times in my life. I have driven thousands though. The first was a final year Cavalier. Impressions? What a pile of !!!!. The Chevettes I used to Ice Race were more fun to drive.

The second a 2007 Grand Prix, Impressions? It was a car, it did it's thing and that was it.

The third a 2012 Fusion, rented for me when the Windstar Recall was on. Impressions? I liked it! So did the Family, not that we are a Car Family.

During the Recall Ford wanted to rent only Ford products, which ran out in our area. 1 Customer who had a 1998 Windstar in the Recall wound up in a 2012 Caliber. He wanted his Windstar back over the Caliber.
 
#15 ·
Why does GM need a global brand? They just need global product that they can slap the geographic location's brand (Opel, Buick, etc.), which they are already doing, but need to do more of (which it seems they are going towards). Buick China and NA seem to be aligning with Opel and some of these cars sold as Chevy's as well. It's what GM has, which is unique in the industry, but it works and they should continue to work with it vs. trying to make one brand global. Does anyone in China care if Buick isn't looked on well in the USA or never heard of in South America? Nope.

One thing I'd like to see is GM experimenting more in other markets. Especially with the Silverado. I get that the streets in Europe are to narrow for such a beast, but I find it hard to believe there is no market for these trucks anywhere else in the world.
 
#17 ·
Why does GM need a global brand? They just need global product that they can slap the geographic location's brand (Opel, Buick, etc.), which they are already doing, but need to do more of (which it seems they are going towards). Buick China and NA seem to be aligning with Opel and some of these cars sold as Chevy's as well. It's what GM has, which is unique in the industry, but it works and they should continue to work with it vs. trying to make one brand global. Does anyone in China care if Buick isn't looked on well in the USA or never heard of in South America? Nope.

One thing I'd like to see is GM experimenting more in other markets. Especially with the Silverado. I get that the streets in Europe are to narrow for such a beast, but I find it hard to believe there is no market for these trucks anywhere else in the world.
Seriously???

So it can save billions in product development, manufacture and distribution.

GM still wastes a ton of money duplicating products that would not exist if GM developed all product under a single global brand that has a proven track record of global sales.

The "Root Cause" of the problem is everyone tries to force feed everything into Chevrolet that has no global connection to the name of the company or various global markets.
 
#16 ·
I thought The Onion bought out Motley Fool. Am I wrong? Should I go back and actually read their drivel?
 
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#19 ·
After looking around it sounds like the special item was $500,000,000 which would put their North American operation minus special items at $2.6 billion vs GMs North American operation minus special items at $2.5 billion. Which while Ford still did out perform GM in North America the total amount was only $100,000,000 though moving fewer vehicles largely due to selling high end pickup trucks to retail customers. This is just one area in which GM is ways away from, also globally Ford making a good chunk of money in Europe also made the difference.
 
#22 ·
Are all the editors dead?

"I understand fleet sales aren't as bad of a business as they once were..."
 
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#24 ·
We still have the media with this perception that daily rental sales make little or no money,
a completely out of date perception on reality that those companies buy well appointed
vehicles similar to retail spec models in response to requests from renters.
 
#34 ·
The article raises some interesting points, but given that GM made two billion last quarter, despite the immediate loss of the fleet vehicles they would have sold, long-term retail still strikes me as the better way to go. That being said, it is obviously good to have competitive product in segments whose first priority is fleet, ie. the aforementioned commercial vans.

Kudos to Ford for the profit margins. But purchasing bots aren't the most demanding customer base for making better product.
 
#40 ·
This would have to do with Fords capacity issues, also. They keep the plants going even during the slow months, this way they can fill their fleet orders............... which are targeted for those slower retail months, and build extra inventory for the busy months ahead.

Simply stating, during the hot sales months, Ford can't build enough to keep ahead of sales. This gives them the cushion they need to not lose sales when there are sales to be had.

Frankly, it is a smart way to manage your capacity constraints for the most bang for your buck.
 
#41 · (Edited)
Exactly, this is Ford using a workaround to get by on restricted production capacity
and still keep their plants buzzing all the time by evening out the ebb and flow of
retail sales with Fleet sales in the quieter months and then focusing more heavily
on retail sales in the latter half of the year......smart business.

It's also why we really can't compare and contrast with GM who are chasing a different
retail /fleet customer mix that's probably more consistent form month to month
and far less seasonal than the Ford methodology....

Even with all of that, Ford's total sales are still less than GM for the quarter
and as we go into Q2, Q3 and Q4, that sales gap will grow larger and larger.

The big question is whether Ford's efficiency can keep its profits close to
that of GM in the next few quarters or will GM power on to greater heights..
 
#42 ·
I get the feeling that some would like to dismiss Ford's Q1 result as purely fleet dumping
combined with channel stuffing dealerships with retail vehicles in order to book the revenue.

The fleet sales are explained as seasonal and limited to the first two quarters but if Ford was
truly engaged channel stuffing, its Q2 revenue and profits would suffer because of a pull forward.

Personally, I think this is the first time in years that Ford has had anything like full dealership stock,
maybe they are a little heavy but perhaps that's in anticipation of bigger sales this quarter.

We'll see soon enough with April sales due out this week....
 
#43 ·
Brian Johnson, an analyst with Barclays Capital, called Ford's first-quarter margins "well beyond our expectations." Ford's 12.9 percent margin compares with 8.7 percent at General Motors and 7.2 percent for Fiat Chrysler Automobiles.

Other analysts and investors fear that Ford's recent success is as good as the automaker will ever do. Hinrichs is clearly frustrated by that reaction: "We've had three all-time record quarters in the last four, and each one was "as good as it was going to get.'"

more at autonews.com.....http://www.autonews.com/article/20160502/OEM02/305029962/joe-hinrichs-has-ford-humming
I feel his frustration....
 
#48 ·
Ford has been working the fleet market well for years. When I started working at the company I retired from in 1971, we had a lot of company cars that were replaced every 60,000 miles or 3 years (it varied over the years). We had a choice of all of the American manufacturers (even AMC). Over the years, I had Chevrolet, Buick, Pontiac, Ford, Mercury, Dodge and Plymouth. The GM products of the early 80s were very problem prone that cost my company a lot of rental car expense, lost productivity and inconvenience (transmission and steering gears on FWD cars). In the 90s, we were suddenly told we could choose a Ford or Mercury with a choice only of color. Ford still is the exclusive provider of the company cars (25 years) but the color choice is gone and you now get silver.
 
#52 · (Edited)
I think it's going to always be much harder for GM to scale it's investments in the same way that Ford can. Ford is actually one of the few volume automakers that's truly global and all their investments are spread out over much greater sales volume, this will always be a huge advantage. This does mean that Ford isn't as nimble at the regional level, every product needs quite a lead time to justify and develop (but this keeps them disciplined). Of course, when you're as big as Ford, you will always have customers waiting even if you're not the first. Still, Ford's superstar is the F-Series and there is just no profit powerhouse that compares in this industry which makes everything look rosey. Ford certainly earned it however, they've taken such a clear leadership roll in the segment and have made very successful gambles to get there. Ford is very good at prioritizing products and investments and knows where and how to play to their strengths in almost every region of the world. Ford is a company I find hard to doubt, from production to products I've never see a company that has such a clear grasp on what works even when others don't. So even if they don't have an exciting EV, Midsize Truck, or Subcompact utility in the US (yet), that doesn't mean they're not going to be there and successful when they do.
 
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