Ford, With Too Few Fusions, Falls Behind Toyota in July Sales

DETROIT ( TheStreet) -- In July, for the first time since March 2010, Toyota ( TM) led Ford ( F) in U.S. auto sales, one more sign that Ford can't make vehicles fast enough.

Ford has inventory shortages of the Fusion and the Escape, top sellers in the midsize sedan and utility segments, and plans to resolve them with production increases this fall. Until then, the automaker is losing an uncounted number of sales because it doesn't have enough product.

In July, when U.S. light-vehicle sales rose 14%, Fusion sales fell 12% to 20,522 units and sales of Escape, the best-selling utility vehicle this year, rose just 3.6% to 22,343. During the month, Toyota -- with light-vehicle sales in July of 193,394 -- beat out Ford light-vehicle sales of 193,080.

Ford's Fusion supply is down to 30 days, about half the industry average, while the Escape supply is around 40 days. In the fall, Ford will boost Fusion production after adding 1,400 workers at its Flat Rock, Mich., plant. As for Escape, "we're making all we can in Louisville right now," said Ford analyst Erich Merkle. Ford will also increase production of the Explorer, another hot vehicle, at its Chicago plant.

The time it takes to sell a Fusion, once the car gets to the dealer, is extremely brief for a car that was introduced about a year ago. "In some key coastal markets like L.A., San Francisco and Miami, the days to turn is around two weeks, in an industry where it usually takes about two months to move a vehicle," Merkle said. Coastal markets are important because, historically, the Detroit Three do well in the middle of the country and foreign manufacturers dominate on both coasts.

Call it "a good problem to have" if you like, but not being able to produce enough product to satisfy demand is rarely as good as being able to produce enough product to satisfy demand.

Edmunds.com analyst Jessica Caldwell said sales growth for popular vehicles like Fusion and Escape depends on "conquests," taking buyers from other brands. "It will hurt (Ford) if they don't have inventory out there (because) new buyers will stick to what they're used to," Caldwell said on a conference call with reporters. "It could be detrimental." Caldwell noted that Ford's 11% sales gain in July was less than the industry average gain of 14%, one indication of the extent of the sales loss.

At the same time, Caldwell said, it is hard to blame Ford for its shortages. "The industry is changing," she said. "Things are bouncing back and it's a time of 'we need more cars.' But there is a lot of caution out there. It is a bit tricky. In 2009 and 2010, we were pulling back so much, and then things started to accelerate at a rapid pace and there is just not the leverage there to increase (supply) and so people talk about inventory shortages a lot."

Ford's Merkle noted that the calculation was particularly difficult because not only is demand for vehicles increasing but also Ford's market share is increasing too.

Light-vehicle sales are up 8.5% year to date. Meanwhile, in an industry that fights tooth and nail for a tenth of a point gain in market share, Ford's market share is up 0.7 points to 15.7%, while most major brands are flat or down. Chevrolet's share is down 0.4 points while Toyota's is down 0.2 points. Chrysler is down 0.2 points, Honda ( HMC) is flat and Nissan ( NSANY) is up 0.2%.

"It's much easier to plan around a flat share," Merkle said. "When you have a growing industry and a growing share within a growing industry, it's a herculean task to plan to bring on capacity fast enough to keep up with it." In the auto industry growing capacity is a complex exercise that includes hiring workers, assuring plant space and aligning demand increases with the capabilities of hundreds of suppliers.

Still, it is worth noting that GM ( GM) was agonizingly meticulous in introducing a new truck this summer. Starting in 2012, GM talked constantly of the inventory buildup of 2013 Silverado followed by factory shutdowns to prepare for the introduction of the 2014 models.

"We started talking about it 18 months ago, well before the housing market started to recover," said GM spokesman James Cain. "The conventional wisdom was that we could not sell down inventories without going crazy on incentives."

July metrics seem to show that GM nailed it. Silverado sales in July rose 45% while GMC Sierra sales rose 49%. The trucks' inventory levels were at 68 days, July incentives were about the same as June incentives, and 2014 models accounted for about 15% of sales. "Inventory levels are just right for the outgoing trucks," said GM economist Mustafa Mohatarem, on the sales call.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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