Ford continues to knock the ball out of the park with its second-generation Ford Fusion. The new Fusion, which debuted to great fanfare last fall, has quickly become one of Ford’s best-selling models. I have been bullish on the new Fusion’s potential since last August, and the early sales results have still outperformed my expectations.

The 2013 Ford Fusion (courtesy of Ford)

However, sales gains may have peaked for the time being, due to capacity constraints, which were highlighted Tuesday morning by Ford’s management on the company’s sales conference call. Fusion inventories are already very tight in many parts of the country, and are likely to get even slimmer during the spring and summer car-buying season.

From an investor standpoint, excess demand is a high-class problem to have. Lean inventories will allow Ford to sell as many Fusions as it can make without resorting to discounts. Furthermore, dealers may be able to cross-sell other Ford models to customers who come into dealerships thinking about purchasing a Fusion. Lastly, Ford will bring a second factory online to produce the Fusion beginning this summer, which will provide a foundation for further sales gains.

Increasing sales
Last month, I pointed out that Ford was gaining on competitors in the large and growing midsize car segment in 2013. The U.S. midsize segment has been dominated by the big three Japanese automakers — Toyota Motor , Honda Motor , and Nissan — for many years. However, the Fusion outsold the Nissan Altima in both January and February, catapulting Ford into third place.

In March, Fusion sales rose once again, setting an all-time monthly record with 30,284 sales. If not for the capacity constraints mentioned above, Ford could have sold more vehicles. Supply was very tight in big markets like California and south Florida, where Fusions sat on dealer lots for an average of about 15 days (the industry norm is approximately 60 days). Fusion production at Ford’s Flat Rock plant is expected to begin around July, so Ford should be able to meet full demand by sometime this fall. Until then, supply is likely to be tight, which means there won’t be many discounts, and selection will be limited for car buyers.

Be careful
While the Fusion’s popularity is great news for Ford shareholders, there are still reasons to be cautious about the stock. Despite Fusion‘s strong showing, Ford fell back into fourth place in the midsize segment in March, as Nissan Altima sales rebounded to 37763 units. (In fact, Nissan jumped all the way to first in the midsize segment last month, edging out longtime segment leader Toyota Camry by 100 units.) Nissan’s gains were probably due to higher incentive spending; according to TrueCar, Nissan’s incentives averaged 9.9% of the average transaction price last month, up sequentially from 9.6% in February. By contrast, incentive spending fell sequentially from 8.8% of ATPs in February to …read more
Source: FULL ARTICLE at DailyFinance