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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.
Be careful out there!
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