In Q2, Ford Was Living The Toyota Life And Loving It.

In this summer of low incentives, consumers are facing record-high vehicle prices. Inventories are low and many vehicles are being sold at or above the manufacturer’s suggested retail price (MSRP). While interest rates remain favorable and help the bottom line of most deals, incentive spending has dropped off notably in 2021, putting pressure on vehicle affordability. June incentive spending by the automakers was at a year-to-date low. From a buyers’ point of view, the low-ball incentives are bad news. From the automakers’ POV, just the opposite is true.

Perhaps nowhere is that more apparent than with Ford Motor Company. Earlier this week, the Blue Oval confirmed its Q2 2021 financial results and delivered Street-beating numbers with a net income of $561 million in the second quarter and adjusted earnings before interest and tax (EBIT) of $1.1 billion. They increased their guidance for full-year earnings. Overall, positive news.

According to an analysis of Kelley Blue Book data, sales of Ford and Lincoln vehicles were up year over year in the quarter, as expected, but were down notably from the second quarter of pre-pandemic 2019. Ford is a smaller company than it was just two years ago, as it has pared away slow-selling cars and focused its efforts on profitable trucks and SUVs. 

In its filings this week, Ford noted that revenue per unit sold in North America was up 14% year over year thanks to lower incentives and a more favorable mix of products. Indeed, lower incentive spending helped Ford’s bottom line, a fact mentioned often in the reports.

According to Kelley Blue Book estimates, the company’s incentive spending was on average $2,621 per every Ford and Lincoln model sold. Top-line math puts Ford’s total bill for incentives in Q2 in the U.S. at $1.2 billion (vehicles sold multiplied by incentives per vehicle). That’s a lot of money, but a significant savings versus 2019, when incentives averaged $4,333 per vehicle. The top-line math demonstrates just how much the automakers benefit when they’re able to lower incentives.

Consider this: If Ford Motor Company’s per-vehicle incentive spending in the U.S. in Q2 2021 was equal to its spending in Q2 2019, the total bill in the quarter would have come to $2 billion. Ford’s per-vehicle incentive spending in the past quarter was more on par with Toyota and Honda, two companies that routinely spend less on incentives each year. And the lower incentive spending directly added good news to Ford’s bottom line, to the tune of more than $800 million in the quarter in this comparison.

Q2 Ford U.S. Incentive Spending Comparison

Nearly all automakers are delivering solid profits in 2021, benefitting from strong consumer demand, tight inventory and the resulting high prices and lower incentive spending. Going forward, we expect all the makers to work hard to better match inventory with demand and keep cash-burning sales incentives in check. As Ford CEO Jim Farley noted this week, “I know we are wasting money on incentives.”