What we know
For the second quarter, Ford Motor Company (NYSE:F) saw an uptick in sales volume and market share. Ford basically said that it learned its lesson during the U.S. recession and wouldn’t resort to dishing out massive incentives and taking huge losses per vehicle sold to salvage market share. Ford essentially conceded it would lose some share to minimize its profit loss. Instead, year-over-year June market share numbers show that Ford has actually gained a full percentage point, from 7.2% to 8.2%, in the 19 traditional European markets.
That means that Ford Motor Company (NYSE:F) gained in market share every month in the second quarter compared to the previous year. The quarter ended on a solid note as Ford Motor Company (NYSE:F)’s sales volume increased 6.4% in an industry that did the opposite – it fell 6.5%. The reason for this is Ford’s strategy to focus on delivering a vehicle worth buying, rather than pushing unpopular models off the lots with the incentives I mentioned earlier – and it’s working.
“With all the new vehicles and technology we are bringing to market, we made a big bet to focus on retail share and very deliberately reduce participation in sales channels that are less healthy for our brand and residual values,” said Roelant de Waard, vice president, marketing, sales and service, Ford Motor Company (NYSE:F) of Europe in a Ford press release. “This is paying off with the success of new vehicles like the Fiesta, Kuga, B-MAX and Transit Custom.”
Caveat
Even with all the good news in the second quarter, we still have to remember that Ford lost $462 million in Europe in Q1 and didn’t revise its estimated yearly loss of $2 billion. That likely means Ford is either being cautious to not jump the gun on recovering its profits faster than expected in Europe, or it expects little to no improvement for the rest of the year. As a Ford shareholder I’d love to see a surprise decline in Q2 losses, but even if the losses remain exactly the same as in Q1, everything is OK in the big picture and the plan to break even in Europe in 2015 still remains. It’s also a good sign that Ford isn’t closing any more plant to cut capacity, which shows that management believes Europe’s automotive sales have bottomed out.
Bottom line
It can’t be underestimated how much the losses in Europe mean to Ford Motor Company (NYSE:F)’s share price. If Ford can indeed break even in the region by the end of 2015 it would salvage nearly $2 billion in lost profits per year. If all the positive news from Q2 sales volume and market share translates into a decline of losses reported in Europe, expect the market to react very favorably to the news – much to the delight of Ford investors.
The article 1 Thing to Look for in Ford’s Q2 Earnings originally appeared on Fool.com and is written by Daniel Miller.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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