Ford's Inventory Mix: What the Heck is a 'Crossover' Vehicle?

The world ain't all sunshine and rainbows. It is a very mean and nasty place It will beat you to your knees and keep you there permanently if you let it. You, me or nobody is going to hit as hard as life. But it ain't about how hard you hit, it is about how hard you can get hit and keep moving forward, how much can you take and keep moving forward. That's how winning is done!

Source: Memorable Quotes for the movie Rocky Balboa (2006), Imdb.com

Ford's (F) Inventory Mix
As you may recall, earlier this month I said that based on data provided on Ford's May sales conference call, Ford dealers might be stocked with too many trucks and not enough cars.

I articulated this concern because the mix of car sales were over 50%, but dealer inventories seemed disproportionately weighted toward trucks.

Earlier this week, Mr. Pipas (Ford's head of sales analysis) emailed me and explained some of the confusion:

Your comment reminded how I can get myself into trouble going back and forth between traditional views of the business (i.e., cars and trucks) and more contemporary views (car based products vs. truck based products). Thank you.

The inventories provided on the call were based on the traditional view. 160,000 cars represented 29% of ending May stocks. As you noted, there is a big disconnect between 29% inventory and 52% sales. It would have been helpful had I noted some of the truck inventory were crossovers. In fact, 74,000 units of the truck inventory was crossover. (Escape, Mariner, Taurus X -- the product formerly known as Freestyle -- Edge and Lincoln MKX). So, that would make a total car/crossover inventory of 234,000 accounting for 42% of total inventory. Closer to 52% but still shy of our May sales mix. By the way, I think June sales mix of cars/crossovers will be higher than 50% as well.

Another subtle adjustment would be to tell everybody what the retail inventory is -- since the 52% referred to retail sales. For your information, Ford inventory includes all inventory including units ordered for fleet customers. In addition, it includes "in transit" inventory (generally worth about two weeks of production). . .

However, using retail only inventory shows the same picture 42% is cars/crossovers.

Source: George Pipas, head of sales analysis, Ford Motor Company

Now this still suggests dealers might be stocked with too many truck products (versus the demand that is out there).

But it is hardly at the disproportionate level I indicated earlier this month.

I would like to thank Mr. Pipas for clarifying the data.

And I think it raises an important issue for those of us in the "industry observation" business. We really need to start clarifying what vehicles are "crossovers" and where they are categorized (cars or trucks).

The lines are likely to blur more over the years. So clarifying and defining where these vehicles fall is going to become important to avoid further misunderstandings about an automaker or dealer's competitive position.

What the heck is a crossover?
And for those of you in the investment community that have heard the term crossover vehicle on 50 different conference calls, but never really understood what it meant. I thought I would try to shed some light.

If you run a Google search on crossover vehicles you will see a plethora (overabundance) of articles on the topic.

But I think the most succinct analysis of crossover vehicles came from Frank Washington at Edmund's Inside Line on February 2, 2006. The article was appropriately titled "What the hell is a crossover vehicle?"

Below are a few quotes from the article:

The term 'crossover' is a one-word moniker for a sport-utility that uses a car chassis. According to the Edmunds.com Data Department, there are now 41 crossovers on the road. They range from the first one, Toyota's RAV4, to the much maligned Pontiac Aztek to the sleekly styled Infiniti FX to the high-priced Mercedes-Benz R-Class...

"Someone who buys a crossover is someone who probably belongs in a minivan, but they can't deal with the image," says Ralph Gilles, director of Dodge Truck Studio, SRT Design at the Chrysler Group. "That's really what it comes down to."

Indeed, the majority of buyers of Ford's crossovers - the Escape, the Freestyle and the Mercury Mariner - are 35 to 39 years old, care for children and in many cases their parents. Almost 85 percent of them are married..."

Call them crossovers, or call them multipurpose vehicles, it doesn't matter. "Clearly, manufacturers' gross-profit-per-unit is going to shrink with these vehicles, unless you're able to steal market share," says AutoTrend analysts Joe Philippi. "Implicit in that is very aggressive styling, more performance, more value for the money."

Source: Frank Washington, Edmunds Inside Line, February 2, 2006

While more crossovers are likely to hit the market, I will continue to encourage automakers to avoid the temptation of "product proliferation." The more you try to splice the market to meet the individual wants and needs of consumers. The more investment that is required with lower returns.

Doing fewer things better just seems like the formula for success (be it distribution or manufacturing) in my opinion. And so I still think manufacturers should reduce the types of vehicles they offer in the market place. But create vehicles that can be customized significantly at the dealership to meet the individual needs and wants of the customer (so even greater choice at the end sale point).

Scion is on to something with the ("mass customization") concept, now if they could only get a more consumer friendly website.

And I think the Smart vehicles have some potential in this area as well (easily removable panels so you can change the color of the vehicle on whim).

United Auto Group (UAG) dividend/name change
Speaking of the folks bringing Smart to the United States (United Auto Group). Last month in one of my "data dumps" I said that United Auto Group pays a quarterly dividend of $0.28.

It is actually $0.07 a quarter, which works out to $0.28 a year (the number used to compute the dividend yield I showed).

Also, on July 2, 2007, United Auto Group will change its name to Penske Automotive Group.

Comments

[Paul Meisel:]

"While more crossovers are likely to hit the market, I will continue to encourage automakers to avoid the temptation of "product proliferation." The more you try to splice the market to meet the individual wants and needs of consumers. The more investment that is required with lower returns."

True, but if you can do proliferation more cheaply (I think Chrysler is the leader) then you get more customer market penetration with reasonable investment.

I used to have arguments like this with my dad all the time (he wasn't sure why the 50s Ford Station wagons weren't still in production, along with the Studebaker Hawk, the Avanti, and the Checker.) He said "why do you make all those models" and I said "Because people buy them, Dad..."

George's remarks highlight the difficulties of segment analysis. I think to be really accurate you have to do it by model, trended in monthly data over several months (I am quite sure that is how George does it internally).

2007 Jun 25 11:15 AM

[bncoleman719:]

ALL automotive manufacturers have too many different models, none of which meet the real "needs" of the consumer. The reasons consumers buy most things is appearance and one-upsmanship. Rarely does logic apply. We are a nation of sheep. You can tell us anything without question and you can sell us anything without question. The SUVs are trucks prettied up. Their interior space is often less than a large sedan. With all seats full there is little room for groceries for 2. That's OK so long as you look like your neighbors. Some of the really small SUVs look like toys or throw-away vehicles. People die in those things even if a large dog runs into them.

Get down to business and cut the crap about crossovers and truck verses car platforms. If one needs a truck, one should buy a truck. If you do that then you are back to business - making cars and trucks.

2007 Jun 25 05:18 PM