This Automaker Is A Buy!
Eshna is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What a run Ford (NYSE: F) F-series pick-ups are having! Ford has sold a whopping 120,000 pick-ups over the last two months. Demand is so high that analysts are wondering if Ford would be able to keep up with the pace of demand growth. As General Motors (NYSE: GM) gears up for its big pick-up launches and demand for the new 2013 Chrysler RAM gathers steam let’s see what the future holds for Ford.
All the big three Detroit automakers are performing incredibly well in the pickup segment. Ford continues to lead the pack. The company has just released its April sales number which shows that it sold over 59,000 pick-up trucks in the month. This is 24% higher than the year-ago levels and comes after a solid March sales.
The current demand it is widespread and coming from all parts of the country with the strongest areas being southeast and the west. Some of the dealers are reporting over 50% increases in F-series truck sales.
The market will continue to gain traction
New housing constructions are regarded as the key driver for the truck market. And the new housing starts have increased by 35.6% during the first quarter as per Ford’s estimates. According to a Bloomberg survey, the annualized rate of housing starts has increased from 917,000 in February to about 930,000 in March.
No wonder the pickup segment has outpaced the broader automobile industry growth by almost three times and moved up 20% over year-ago levels. This segment accounted for around 11.5% of the total industry sales in April.
The strong housing trends are expected to continue in the near term helped by low mortgage rates and overall recovery in the economy. Bloomberg estimates that applications for home building have hit an annualized rate of 943,000 in March, ahead of the actual housing starts. This will keep the momentum going in the pickup trucks segment.
Competition will be tough
Due to the solid demand automakers are vying for gaining share in the lucrative pickup truck market. This segment is a favorite with automakers due to the fat margins, which excluding development costs can even go up to ten times the margins on a sedan or a small car.
Currently, GM is witnessing solid demand for its trucks. This is further helped by the heavy incentives that the company is offering. In April, Silverado sales were higher by 28% to 39,395 while Sierra moved up 12.8% to 14,208.
GM’s new 2014 Silverado and Sierra will make their appearances later this year. The company is building up the excitement by promoting the superior fuel efficiency of these trucks. The new Silverado will use V8 fuel economy which is superior to Ford’s EcoBoost V6. Additionally, GM will offer carry over pricing for the new Silverado, free scheduled maintenance for two years, and other benefits. Management expects new models to account for roughly 25% of total truck sales this year.
After a slow launch in the first quarter, demand for the new 2013 Chrysler RAM is surging. Chrysler is 58.5% owned by Italian automaker Fiat (NASDAQOTH: FIATY.PK).
The company has overcome the teething issues associated with getting its remodeled 2013 RAM pickup into the market. Now the dealers are happy with the inventory levels and sales increased by a huge 49% in April over year-ago levels. Chrysler sold 31,409 RAM pickups in April.
The company will be remodeling its facility at Warren, Michigan to increase production by 32% over last year’s levels to produce 300,000 trucks annually.
Where does this leave Ford?
Ford pickups have been America’s best-selling trucks for over three and a half decades. One of the main reasons for this according to analysts at Edmunds.com is the “fierce” loyalty that truck owners show towards their preferred nameplates in the pickup segment.
Besides, Ford will be launching its new F-series models next year. It would be interesting to see the fuel efficiency and technological advancements that the company will bring to the market. Ford is famous for its frequent remodeling which keeps its fleet young and fresh.
The company is expecting demand for its pickups to remain high and this is seconded by the analysts. Analysts are expecting that this year sales may even exceed 700,000. To cater to this demand Ford is adding capacity.
The company has just announced that it will be adding a third shift at its Kansas City assembly plant for building its F-150 trucks. It will hire around 900 workers who will start work from the third quarter.
Ford had earlier said that it renovate another part of the Kansas City plant where it will produce the Transit commercial vans from next year. This will add 1,100 jobs.
Ford’s trucks are enjoying excellent demand. These pickups have stood the test of time. The company is well prepared to take advantage of this growing demand. Although competitive measures are increasing, the prospects of the F-series trucks continue to remain bright.
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Eshna De has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!