Yahoo Finance Ford's New Fiesta May Have Dented 3rd-Quarter Profits
Ford Motor Company (NYSE: F) said that its sales in Europe fell 10.9% in September, Ford's fourth consecutive month of sales declines in the Old World. Once again, tight supplies of Ford's all-new Fiesta more than explained the decline.
The raw numbers: The Fiesta shortage really hurt Ford last month
Ford sold about 129,900 vehicles in September in the 20 Western and Central European markets that it considers its primary market in Europe (the "Euro 20," in Ford's lingo). That was down 11%, or about 15,900 vehicles, from its total in September 2016. Sales of the Fiesta were down about 16,000 vehicles from a year ago.
The decline dropped Ford's market share in the region by about a tenth of a percentage point from a year ago, to 7.5% for the month.
In Europe as a whole, including Russia, Turkey, the former Soviet republics, and the countries of Eastern Europe (what Ford calls the "Euro 50"), Ford sold about 145,600 vehicles in September, down 9% from a year ago. Ford's market share in the Euro 50 was down about a tenth of a percentage point from a year ago, at 7.5%.
The Fiesta is Ford's best-seller in Europe. Tight supplies of the all-new model have put a big dent in the Blue Oval's sales. Image source: Ford Motor Company.
What's going on with the Fiesta?
In a statement, Ford Europe sales chief Roelant de Waard made clear that the reason for the big drop in Fiesta sales has to do with supply, not demand:
Our customer order bank is now at one of its highest ever levels and underlines the strength of customer demand for models across our vehicle range in Europe. We've had a great run-out of the previous model Fiesta, and demand for the all-new Fiesta is very high but we're continuing to face some constraints to supply as we ramp up to full production.
Translation: Ford is having some trouble getting the new 2018 Fiesta's assembly line at its massive factory in Cologne, Germany, up to full speed. Ford hasn't explained why, but it's very possible that the problem lies with a supplier, not with Ford itself. Meanwhile, dealers are running out of leftover 2017 Fiestas to sell.
This seems likely to be a short-term issue; I expect Ford (and its suppliers) to sort things out and have the new Fiesta's production line up to full speed within weeks.
Meanwhile, Ford's SUVs and vans are still doing well
Sales of Ford's SUVs as a group in the Euro 20 rose 3.7% in September, with all three of Ford's European-market SUVs (the EcoSport, Kuga, and Edge) posting year-over-year sales increases. The Kuga, the European version of the Escape, led the pack with about 14,700 sold, up about 1.4% from a year ago.
Ford gave its little EcoSport SUV an overhaul to try to boost its sales in Europe. The revamped EcoSport went into production at Ford's factory in Cralova, Romania, last week. Image source: Ford Motor Company.
Ford's commercial-vehicle lineup, which includes the Transit and Tourneo vans as well as the midsize Ranger pickup, also continued to do well in September. Sales of the group were down slightly from a year ago, but Ford's share of Europe's commercial-vehicle market remained strong at 16.4%.
Year-to-date, Ford's commercial-vehicle sales in the Euro 20 are up 7.8%.
Analysis: The Fiesta shortage put a dent in Ford's third-quarter result
Ford will report its third-quarter earnings result on October 26. What should we expect for Europe?
It's tough to feel optimistic. Ford's sales in the Euro 20 were down 7% in the quarter, as September's result followed declines in July and August. Taken together, that's a drop of about 22,800 vehicles year over year. But once again, the Fiesta shortage more than explains the decline: Ford's third-quarter sales of Fiestas in the Euro 20 fell by about 31,700 vehicles year over year -- a steep 45% drop.
Assuming there are no long-term issues with Ford's production line in Germany, I expect the company will make up those lost sales (and then some) over the next few quarters. De Waard's comment about Ford's order bank certainly gives the impression that demand for the new Fiesta will be extremely brisk once it can get enough of the new cars to its dealers.
Investors certainly hope so: The Fiesta is a small car, but it's a huge seller in Europe, as we've seen -- and the all-new Fiesta is expected to be more profitable than its predecessor.
Ford Europe earned $138 million in operating profit in the third quarter of 2016, the unit's best third-quarter profit since 2007. It seems likely that its result will be less impressive this time around.
More From The Motley Fool
Why You're Smart to Buy Shopify Inc. (US) -- Despite Citron's Report
6 Years Later, 6 Charts That Show How Far Apple, Inc. Has Come Since Steve Jobs' Passing
NVIDIA Scores 2 Drone Wins -- Including the AI for an E-Commerce Giant's Delivery Drones
John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.
