Ford Looking To Change The World

Nov.20.12 | About: Ford Motor (F)

Chrysler, Dodge and Honda (NYSE:HMC) have dominated the kid-friendly, family packed car for the past few years. The minivan - dubbed the "soccer mom" ride - is something that Ford (NYSE:F) abandoned years ago, in 2007, opting instead to focus on the SUV market such as the Ford Explorer and Ford Escape. But that's all about to change, with Ford looking to enter the minivan sector in late-2013. Before we dig into any of the details, lets make sure we keep things straight here; Ford wants it clear this is not a minivan, but rather, a hybrid sport utility vehicle, called the Transit Connect Wagon.

David Mondragon, General Manager of Marketing for Ford, had this to say on the matter, "It's anything but a minivan. In our mind, it's a people mover. We think of it as more of a utility, or kind of a hybrid sport utility, than a minivan."

To get more of an understanding on why Ford may be looking to get back into the market of "people moving," let's take a look at how the top three minivan makers have fared this year. Below is a chart, with October's sales results, year-to-date sales totals, and year-to-date percentage change:

Minivan October 2012 (sales) Year To Date (sales) Year To Date % Change
Chrysler Town & Country 8,281 95,850 +22.5%
Dodge Grand Caravan 10,603 118,730 +27.8%
Honda Odyssey 9,712 107,536 +24.4%
Click to enlarge

Source: goodcarbadcar.net

While the above table shows each of the top three minivan makers are enjoying a nice 2012, why Ford decided to get out of the minivan business in 2007 was a no-brainer. Ford, along with the three above mentioned models, have seen declining sales since 2002. Below is a table, including Ford, with how U.S. sales did from 2002-2009:

Year Town & Country Odyssey Grand Caravan Ford Windstar/Freestar
2002 163,770 153,467 244,911 148,875
2003 141,100 154,063 233,394 129,236
2004 144,357 154,238 242,307 100,622
2005 180,759 174,275 226,771 77,585
2006 159,105 177,919 211,140 50,125
2007 138,151 173,046 176,150 2,390*
2008 118,563 135,493 123,749 N/A
Click to enlarge

Source: goodcarbadcar.net

*Ford stopped producing its Freestar model in 2007.

Furthermore, included below, are Ford's minivan sales in the years prior to 2002, more specifically 1999-2001.

Year Ford U.S. Sales
1999 213,844
2000 222,298
2001 179,595
Click to enlarge

Source: Theautochannel.com

For our last chart, we're going to look at the percentage change from each year in Ford's U.S. minivan sales. The table will chart from 1999-2006 and it quickly becomes obvious as to why Ford stopped making the Windstar and Freestar models.

Year Ford U.S. Minivan Sales Change In Sales (Units) % Change From Previous Year
1999 213,844 -- --
2000 222,298 +8,454 +3.9%
2001 179,595 -42,703 -19.2%
2002 148,875 -30,720 -17.1%
2003 129,236 -19,639 -13.2%
2004 100,622 -28,614 -22.14%
2005 77,585 -23,037 -22.89%
2006 50,125 -27,460 -35.39%
Click to enlarge

Source: theautochannel.com

It's safe to say the minivan business is a falling trade, something that may have investors wondering why Ford would dare venture back in, with such successes after moving out. After all, the minivan business only attributes to about 4% of all annual U.S. car sales. But with Ford having such a strong grip on the pick-up truck market, controlling 33% of October sales with its F-Series, it looks as though diversification is key. For more on the Ford and its F-Series, along with a bullish options play, click here.

Ford, as many may not know, already produces and sells the Transit Connect Wagon, and has since 2010. It's main purpose is more commercial based however, with current sales around 35,000 units annually within the U.S. But with minivan sales peaking in 2000, with 1.37 million models sold, while only 472,398 models sold last year, I myself wonder if this is the right move for Ford going forward.

Personally, I don't think it's a game-changer, but I think it's a step in the right direction. Of course Ford can always look to take away market share in other niche areas, like minivans, while still remaining successful with the F-Series, Escape and Focus doing most of the heavy lifting. Ford estimates those sales to double for the Transit Wagon, up to 70,000, with half of the buyers remaining as commercial drivers and taxi companies.

Below is a table with the more recent sales of minivans for the current, three best selling models based on U.S. sales from 2009-2012:

Year Town & Country Odyssey Grand Caravan
2009 84,558 100,133 90,666
2010 112,275 108,182 103,323
2011 94,320 107,068 110,862
2012 YTD 95,850 107,536 118,730
Click to enlarge

Source: goodcarbadcar.net

While minivan sales aren't quite what they used to be, it is clearly on the upswing when you look at the chart above. One can see that while sales aren't blowing away numbers by any means they are moving in the right direction, and so far for 2012, with sales figures only through 10 months of the year, each model has already outsold the previous year, 2011. Perhaps this recent upswing is one of the reasons that Ford is looking to get back into the minivan business, even if they refuse to call it a minivan.

Now is as good of time as any for Ford to attempt a minivan comeback. While I think they made the right decision in abandoning the Windstar and Freestar models in 2007, I think the recent sales from minivans are promising. Since Ford already produces a "commercial minivan," making a transition into the family minivan sector should make the task easier.

It is estimated that Ford's new minivan model will run on a four-cylinder engine or an optional 1.6 liter EcoBoost. While a majority of its current sales are equipped for 7-passenger seating, Ford will include a 5-passenger option as well, which makes up about 15% of current Transit Connect sales.

Aside from multi-passenger seating and different engine options, something most minivan makers can already offer, what's going to truly set Ford's new model apart from the rest? The Transit Connect Wagon will get at least 30 mpg, better than any other minivan on the road today. The Honda Odyssey comes close, with 28 mpg highway, but Ford plans on having at least 30 mpg, and potentially more, for its new model.

When considering purchasing a car, the other factor besides fuel efficiency is none other than, price. Though there has been no official word on the cost of the Transit Connect Wagon, it's estimated that it will be on the lower end of the current market. The Dodge Grand Caravan currently starts at just under $20,000, a price range Ford will likely look to enter as well.

While I don't think that this new model will push Ford over the hump and separate them from the pack, I do think it will help diversify its product line. There will always be parents looking for family vehicles and even though I don't think Ford will overtake any of the current top three minivan makers, it will still take market share and potentially lead to future sales in other models. Ford already makes quality vehicles and dominates the pick-up market, with hearty sales from the Focus and Escape models contributing to its success as well. I am long and bullish Ford on a fundamental and technical basis.

Disclosure: I am long F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long Ford via long dated, deep-in-the-money call options.