3 Yellow Lights After November’s Strong U.S. Auto Sales

Sales hit a two-year high, but the road ahead is hardly trouble-free

   
3 Yellow Lights After November’s Strong U.S. Auto Sales

U.S. vehicle sales came back strong in November, growing nearly 14% over the same month last year. The numbers suggest that after months of toil, trouble and a tentative economy, the long-hoped-for “pent-up demand” analysts believed would revive the sector’s tarnished fortunes is finally here. Despite the strong numbers, though, a few yellow lights remain on the road ahead.

Car sales hit a seasonally adjusted annual rate (SAAR) of 13.6 million units in November, industry-tracking firm AutoData said Thursday. That’s the highest level in the U.S. since the “Cash for Clunkers” program back in 2009 and the industry’s best November in four years. Despite the robust sales data, auto stocks remained virtually flat along with the broader market on Thursday as investors kept their wallets shut in anticipation of Friday’s employment report for November.

While still ranked only fourth in market share, Fiat’s Chrysler unit was the biggest sales winner in November, jumping 45% to 107,172 vehicles. Chrysler’s spectacular growth was led by the Jeep brand, which posted a 50% increase and delivered its best November performance in eight years. The midsize Chrysler 200 model and the full-size 300 drove the brand’s car sales growth.

General Motors (NYSE:GM) held on to its top market-share position, delivering 180,402 vehicles in November — a year-over-year increase of about 7%. The trends inside those numbers are particularly intriguing: GM’s Chevy and GMC brands soared in November, while its premium Buick and Cadillac brands slumped. Car buyers flocked to the subcompact models Chevy Sonic and Chevy Cruze SUV, but they also embraced full-size pickups like the GMC Sierra and Chevy Silverado.

Ford (NYSE:F) took second place with 166,865 vehicles — an increase of more than 13% over last year. At Ford, car buyers apparently went big — or went elsewhere. Ford truck and SUV sales rocketed by about 25% last month, with the Explorer and Escape SUVs posting gains of about 40%. Sales of the Focus compact slipped nearly 10% as consumers sought out roomier mid- and full-size models like the Fusion and Taurus. Buyers passed on the automaker’s luxury Lincoln brand — its sales fell by more than 17%.

The Japan disaster hit Toyota (NYSE:TM) and Honda (NYSE:HMC) hard. Third-place Toyota’s sales finally began coming back from the brink last month, rising to 137,960. That’s nearly 7% higher than last year and Toyota’s first monthly sales increase since April. Prius hybrids — in short supply after the March 11 Japan disaster — led TM’s sales, along with the Yaris subcompact.

Honda’s November sales slipped more than 6% to 83,925 vehicles, reflected in nearly all of the company’s models. HMC, which also experienced lost production and inventory shortages in the aftermath of the earthquake and tsunami, is now struggling with parts shortages because of extreme flooding in Thailand.

Fortunately, the worst of the shortages appear to be behind the industry. They hammered the Detroit Three as well, driving down total U.S. vehicle sales to a rate of only 11.5 million units in June — their lowest level since September 2010. While those numbers bumped back over 12.2 million in July, vehicle sales finally have broken the 13 million-unit threshold in each of the past three months.

Even better news for automakers: the average transaction price for light vehicles rose 4% in November to $30,317, according to the vehicle pricing data site, TrueCar.com.

So, what could go wrong for the automakers? Here are three caution lights investors should watch out for heading into 2012:

The U.S. economy in an election year. The economic outlook remains a big concern, particularly since the congressional supercommittee lost its nerve and failed to cut a badly needed deficit-reduction deal last week. That’s terrible news for the U.S. economy — particularly going into an election year when the partisan perks of complaining about the problem outweigh the real-world benefits of solving it. An automotive sector that’s struggled for nearly four years to get off the schneid can ill-afford the return of skittish consumers.

Rethinking the supply chain. Extensive flooding in Thailand — a major vehicle parts and manufacturing hub — has thrown yet another monkey wrench into the tightly choreographed automotive supply chain. While Japanese automakers took a bigger hit when Thai suppliers suspended parts production, the second major interruption this year raises serious questions about the industry’s embrace of the “Just-in-Time” inventory strategy. Over the years, automakers have pared supplies to the bone, with parts arriving at manufacturing facilities just as they were needed.

But the high cost of major disruptions may force manufacturers to start ordering extra parts from additional suppliers — a “Just-in-Case” strategy — increasing manufacturing costs substantially.

Europe. There’s no other way to put it: Europe is a mess for automakers right now. Forget a former French foreign minister’s prediction of “violent revolution and war” if the EU’s out of control debt crisis can’t be solved.

At the very least, failure to resolve the Eurozone crisis will trigger another economic slowdown — which would have a chilling impact on auto sales. It doesn’t help that European vehicle sales are already down this year and the outlook is gloomy for 2012.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2011/12/3-yellow-lights-after-novembers-strong-u-s-auto-sales/.

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