The race
The Camry has been holding the top spot in the mid-size segment for the last 11 consecutive years, having won that position from the Ford Taurus. And the Honda Accord has always been just one step behind. About five years back these two cars held around 37% of the market, according to Edmunds.
But things have started changing very radically in the $90 billion sedan market ever since the new Fusions and Altimas started making their appearances last year. Currently, the combined share of Camry and Accord stand at 28% by Edmunds’ estimates.
The Camry could not maintain its lead in both March and April, bowing down to Altima and Accord, respectively. While Toyota Motor Corporation (ADR) (NYSE:TM) says that the Camry will retain the top spot in 2013 with over 400,000 sales, industry experts think otherwise.
According to analysts at Kelley Blue Book there is a possibility that the Accord will outsell the Camry this year. They also think that the next year might belong to the Fusion, which is rapidly gaining share in the mid-size segment.
| January – April 2013 Sales Tally | |
|---|---|
| Toyota Camry | 132,540 |
| Honda Accord | 121,965 |
| Nissan Altima | 108,943 |
| Ford Fusion | 107,280 |
Data: Company sources
Demand for the new Fusion is red hot
The Fusion is enjoying solid demand. In April, retail sales surged 53%, while total sales increased by 24%. Demand is coming from all age groups and from all parts of the country.
The younger crowd is increasingly opting for this car thanks to its trendy look and array of hi-tech features. According to the company’s estimates it sells around 30% of its Fusions to customers below the age of 36.
Meanwhile, some of the older buyers who were planning to buy a luxury car are also settling for a Fusion instead. Ford Motor Company (NYSE:F)’s conquest sales indicate that a good number of buyers are trading in their Cadillacs, BMWs and Audis.
From a geographic perspective, demand is good even in traditionally weak markets like the west and southeast. In April, retail sales doubled in the west and increased by 70% in the southeast. Overall, some of the best numbers came from LA and San Francisco, which were up by 155% and 132%, respectively.
Will Ford be able to meet the demand?
With such a surge in demand, a growing concern is whether or not Ford Motor Company (NYSE:F) will be able to build enough number of Fusions. At the end of April, inventories had already fallen to around 40 days of supply–well below the 60 day mark that is considered comfortable.
The company is doing all that it can to ensure that it loses out on nothing. It is already working three shifts at its Hermosillo, Mexico plant, which produces the Fusion. Its Flat Rock, Michigan plant will start Fusion production this fall, and Ford Motor Company (NYSE:F) is thinking of doing three shifts from the very beginning.
Management is also confident that its dealers, with their track record of working with lower inventories in times of need, will be able to work around the situation until Flat Rock is up and running. While it is early to say how well this will work for Ford Motor Company (NYSE:F), we will be keeping an eye on inventory levels.
What are Toyota and Honda doing?
In April, both companies had their sales falling from year ago levels for Camry and Accord, respectively. The former has witnessed a 14% decline, while it was a 5% drop for the latter.
Honda Motor Co Ltd (NYSE:HMC) is still is holding on to its strategy of lower incentives for Accord despite the lower sales volumes. But Toyota Motor Corporation (ADR) (NYSE:TM) has relented. According to Edmunds.com, Camrys sold for an average price of $21,336 in April, which is about $2,700 lower than last year. The company is also offering 0% financing on its 2013 Camry.
Like all other Japanese exporters, Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (NYSE:HMC) are presently reaping the rewards of an aggressive currency devaluation strategy adopted by the Japanese government. Both companies have guided for over a 40% increase in their profits in the current fiscal year.
Toyota Motor Corporation (ADR) (NYSE:TM) has doubled its profits in the recently reported fourth quarter, owing to the tripling of profits from Japan. For the full year it earned around $10.22 billion on revenue of $234.33 billion.
Honda Motor Co Ltd (NYSE:HMC) put up a more restrained performance in the fourth quarter, growing its earnings by around 5.8%. But, annual earnings grew by a whopping 73.6% to $3.9 billion on 24.3% higher revenue of $96.7 billion.
Looking ahead
The mid-size section makes up the largest chunk of the US auto industry and often comprises the bread and butter business for auto manufacturers. Thus, the performance of the auto manufacturers in this critical segment has a huge bearing on their future prospects. The Ford Fusion is doing very well and may finally emerge victorious in the mid-size race. This will act as a solid catalyst for future growth.
The article Ford Fusion: A Winner in the Making? originally appeared on Fool.com.
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