Auto Industry: Back to Its Heyday? - Analyst BlogThursday, December 06, 2012
It looks that the auto industry is getting back to its heyday, last seen before the economic recession. We see the industry posting multiple-year-high sales for many months in 2012.
November was no exception. Auto sales in the U.S. grew 15% to 1.14 million vehicles, or 15.5 million on a seasonally adjusted annual rate (SAAR) basis in the month driven by pent-up demand generated from Hurricane Sandy as well as from the aging vehicles, and improving macroeconomic conditions. This is the five-year high sales recorded by the industry since 2007.
There were so many factors from the demand side, which fueled the sales growth in November. Firstly, the economy shows confidence (as home prices rise, unemployment reduces and auto financing becomes easier) barring the dangers of forthcoming “fiscal cliff.”
Secondly, the average age of vehicles has been steadily approaching 11 years and can even go beyond, signaling further possibilities of growth in sales of new cars. Thirdly, people in the Northeast who postponed their purchases in October due to Sandy or whose cars were damaged due to the storm were forced to buy new vehicles in November.
These factors, along with the buyers’ desire for more advanced options, lifted the average sales price in the industry to the highest level in nearly a year. According to TrueCar.com, average vehicle price in November were $30,832, up 1.1% from last year.
November witnessed a rise in sales for practically all kinds of vehicles, from trucks to sports utility vehicles (SUVs) and from sedans to small cars. Honda Motor Co. (HMC), Toyota Motor Corp. (TM) and Volkswagen AG (VLKAY) had the biggest sales increases during the month. Among the Detroit automakers, Chrysler was the winner.
Let's delve into the individual automakers’ sales.
Despite posting a meager 3% growth in sales to 186,505 vehicles, General Motors Company (GM) saw its best November since 2007. Thanks to the double-digit growth in sales for its Buick and Cadillac brands. But GM was not gratified with the low sales growth, as it has a smaller exposure in the Sandy-hit regions compared to its rivals and its competitors such as Chrysler, Nissan Motors Co. (NSANY) and Ford Motor Co. (F) resorted to aggressive incentives to boost sales.
Ford’s sales grew 6.5% to 177,673 vehicles, driven by impressive sales growth of small compact Ford Focus (56%) and pickup truck F-Series (18%). Most notably, the company’s small-car sales shot up 76% from November last year. Due to the encouraging sales reports during the year, the company is looking forward to boost its production in 2013.
Chrysler Group -- controlled by Italy’s Fiat SpA (FIATY) -- came up with its five-year high sales of 122,565 vehicles during the month. The 14% rise in sales was mainly attributable to its Dodge brand, which saw a 32% growth during the month. Most notably, Dodge Journey crossover SUV sales jumped 77% in the month.
the long-time battle with safety-related issues seems to have had had very little impact on the sales for Toyota. The automaker’s sales zoomed 17.2% to 161,695 vehicles, driven by burgeoning demand for its Corolla and Camry sedans and Scion small cars. The Camry mid-size was the top-selling vehicle during the month, registering a 22.7% sales growth.
Honda Motor recorded a handsome 38.9% jump in sales to 116,580 vehicles buoyed by sales increases of Accord (83%), Civic (76%) and CR-V (36%). The company’s car sales surged 61% while its truck sales rose 18% during the month.
Nissan Motors witnessed a 12.9% growth in sales to 96,197 vehicles driven by considerable rise in truck sales in both the namesake (23.4%) and Infiniti (109.2%) divisions. Nissan division sales went up 9.8% to 84,300 units, driven mainly by commendable sales of its new Pathfinder SUV. Meanwhile, Infiniti saw its best November since 1989 driven by crossovers and SUVs.
Daimler AG’s (DDAIF) Mercedes-Benz reported a 13.1% rise in sales to 30,315 vehicles in the U.S. The growth was mainly attributable to a 59% increase in sales of its E-Class sedans. The company’s sales were largely benefited from the Sandy-hit regions, which comprise a quarter of its sales.
Volkswagen rocked posting its best November sales since 1973. The company’s sales notched up 29.3% to 36,728 vehicles, driven by impressive sales of Passat mid-size car and Tiguan SUV. Sales in the Sandy-hit regions strongly influenced the company’s overall sales.
Hyundai Motor Co. (HYMLF) and its affiliate Kia Motors Corp did exceptionally well in November despite their battle with the U.S. Environmental Protection Agency regarding its false advertising scandal about fuel efficiency in some models. Hyundai’s sales rose 8% to 53,487 cars while Kia’s sales escalated 10.9% to 41,055 cars. However, only 10% of Hyundai’s U.S. customers were aware of the scandal despite the publicity, according to a study.
Is the Worst Over?
2012 is definitely going to end on a higher note. McNeil, GM’s vice president of U.S. sales operations, stated that industry sales will reach the upper-end of its forecasted range of 14 million–14.5 million units (on a SAAR basis) driven by the growth drivers such as pent-up demand and improved consumer confidence. With this, 2012 would be a remarkable year since 2007 when industry sales clocked at 16.1 million units (on a SAAR basis).
Despite relentless optimism, the looming consequences of impending “fiscal cliff” are difficult to avoid. Most say that a sharp reduction in federal spending and rise in taxes could possibly tip the economy back into recession unless Congress and the White House reach a deal to cut the budget deficit. As a result, many automakers stayed away from making any 2013 projection.
Whatever the authorities decide to resolve the fiasco, we expect an uptrend as automakers brace themselves for the worst and further focuses on all the bright spots the industry has experienced so far this year.
DAIMLER AG (DDAIF): Free Stock Analysis Report
FORD MOTOR CO (F): Free Stock Analysis Report
FIAT SPA (FIATY): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
HONDA MOTOR (HMC): Free Stock Analysis Report
(HYMLF): ETF Research Reports
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
(VLKAY): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research