Fusion inventory has fallen to a 39-day supply; the Lincoln MKC will follow the struggling MKZ, but will precede a new MKX CUV and MKS sedan.
IHS Automotive perspective | |
Significance | Fusion sales, which rose 10% year-on-year (y/y) in May, have risen nearly 22% y/y during the first five months of this year, driven mainly by coastal markets such as Los Angeles, San Francisco and Miami, where Ford sales have historically lagged. |
Implications | The stronger-than-expected demand for the car has Ford scrambling to boost output as any prolonged inventory shortages would likely prompt prospective Fusion buyers to look for other available options in the largest and highly competitive mid-size car segment. |
Outlook | While Fusion output at Hermosillo (Mexico) is already at its peak, the car's inventory will likely be boosted when the Flat Rock, Michigan (US) plant starts production in August, likely churning out another 100,000 Fusions a year. Lincoln's revival, meanwhile, is on track with the MKZ's distinct design but Ford needs to ensure that the next Lincoln rollouts do not encounter launch hiccups. |
Ford, which is witnessing stronger-than-expected demand for the 2013 Fusion, is struggling to maintain inventory levels for the car, reports the Detroit News. Fusion sales, which rose 10% year-on-year (y/y) in May, have risen nearly 22% y/y during the first five months of this year, driven mainly by coastal markets such as Los Angeles, San Francisco and Miami, where Ford sales have historically lagged. Ford, which reportedly has a 39-day supply of the car against a typically healthy average of about 60 days, now fears losing out Fusion customers to rival models, particularly to Toyota's Camry and Honda's Accord. "Inventory is going to be real tight during the summer months," said Erich Merkle, Ford's US sales analyst.
Lincoln revival
In a bid to turn around its struggling Lincoln luxury brand, Ford said it will launch a new compact crossover utility vehicle (CUV) by year-end, based on the MKC concept that it revealed at the North American International Auto Show at the start of this year. The MKC will follow the struggling MKZ, but will precede a new MKX CUV and MKS sedan. IHS Automotive forecasts MKC to clock sales in the 30,000-unit range for its first year. The automaker also plans to launch the upscale brand in China, the world's largest auto market, in the second half of 2014. There are vehicle markets "that we're not playing in today that we can enter that are high-volume segments and growing fast," Matt VanDyke, who is in charge of Lincoln's development and day-to-day operations, said at an investor conference. Along with the new marketing manager appointed in November 2012, Lincoln also has a new global communications manager. In a presentation to investors yesterday (13 June), Ford showed in a chart that it expects the US premium small-car and crossover segments to grow sharply by 2015. Lincoln does not currently offer a small car, but a person familiar with the brand's strategy previously told Reuters that the Lincoln brand is considering rolling out a compact sedan for 2016 or later.
Outlook and implications
The new Fusion's overwhelming success, in line with a rebounding US vehicle market that has expanded over 7% y/y in the first five months of this year, has pushed Ford right in the middle of a highly competitive but lucrative midsize car segment – the largest in the industry. Demand has also been pleasantly strong for the Fusion's hybrid version, which is flying off dealer lots in just 10–14 days, helping Ford overtake its 2010 hybrid sales record of 35,496 vehicles in just the first five months of 2013. Ford manufactures the Fusion at its three-shift assembly plant in Hermosillo, Mexico, and plans to add a shift at the Flat Rock Assembly Plant which is currently preparing for Fusion production in late August (see United States: 22 April 2013: Ford to shutter Flat Rock assembly plant temporarily to prepare for Fusion production). The Hermosillo plant can produce about 300,000 Fusions annually and the new shift at Flat Rock will be able to churn out another 100,000 or more than 8,000 per month – a number that should be good enough to challenge the likes of Camry, Honda and Altima. While Toyota last year sold more than 400,000 Camrys, Honda and Nissan sold more than 300,000 units of the Accord and Altima respectively, and Ford moved about 241,000 Fusions.
Ford is in the process of relaunching Lincoln, having begun with a new advertising campaign (see United States: 4 December 2012: Ford relaunches Lincoln brand with name change, new marketing campaign) and a revised MKZ sedan. Lincoln sales of 82,150 vehicles accounted for a little less than 4% of Ford's US sales last year. From having been the top-selling luxury brand in the country in 1998, it now stands at eighth place in the market. Things, however, are beginning to look up. Lincoln sales, which were down 24% y/y during the first quarter, gained momentum in April and May. Still, sales during the first five months of 2013 were down 10.5% y/y. However, Ford's attempt to revamp Lincoln was dealt a blow earlier this year when quality and supply issues slowed the MKZ's rollout, prompting the automaker to review its vehicle launch procedures (see United States: 7 May 2013: Ford reviews vehicle launch procedures). Dealers had expected the sedan by the end of 2012, but inventory reached "normal" levels only in March this year. In addition, some Fusions, which share the platform with the MKZ and are built on the same line at Hermosillo, suffered similar issues. Lincoln's struggle will be to truly create a unique identity from its Ford counterpart. The MKZ's distinct design moved in the right direction, and the MKC needs to continue that momentum. The MKC is another stepping stone in the lengthy process of rebuilding the brand, and the impact of Lincoln's newly installed design team will be more apparent in the MKC than the MKZ. Although Lincoln's revival plan is a step in the right direction, Ford needs to ensure that the next Lincoln rollouts take place with no issues. With a plethora of new model introductions and more frequent mid-cycle refreshes planned over the next couple of years, Ford needs keep its suppliers in sync for trouble-free launches in the future.