Automakers Are Riding a Rising Market

by Jim Woods | March 15, 2012 11:12 am

Automakers Are Riding a Rising Market

Last Friday, we received news that the U.S. trade deficit had widened[1] from $50.4 billion in December to $52.6 billion in January. The gap is the largest since October 2008. Overall imports rose $4 billion, or 2.1%, on the month — a number that was driven by a by a robust $2.4 billion surge in auto and parts imports. And while the data on auto imports isn’t seasonally adjusted, they do show that that lion’s share of total imports is due to the auto segment.

The trade numbers jibe with recent sales figures in the U.S. indicating very strong growth for automakers. In fact, sales accelerated in February to their fastest pace in four years, rising 15.7% from a year ago, according to industry tracking group Autodata. The numbers certainly suggest the U.S. economy is getting stronger even in the face of rising gasoline prices[2]. In February, the annualized pace of sales climbed to 15.1 million vehicles, a level that hasn’t been seen since before the Great Recession, in February 2008.

However, the import numbers, and of course the increased February sales figures, don’t tell the whole story. The trade deficit data also shows that U.S. auto exports increased $1.1 billion, a number that suggests that foreign demand for Detroit Rock City’s signature product remains robust. And that’s good news indeed for American car companies Chrysler, Ford Motor (NYSE:F[3]) and General Motors (NYSE:GM[4]).

So, why the increase in auto sector imports and exports?

The answer just may be that after several years on bumpy roads, the auto industry now is firing on all cylinders.

The combination of improving conditions in the U.S. economy and increased access to low-rate auto loans has caused many consumers to conclude that now is the time to get that new car. Moreover, the price of used cars is higher than it’s been in years, and that adds to the financial attractiveness of buying a new vehicle.

Then there’s the high cost of gasoline, which actually appears to be having a positive affect on new-car sales. The reason: New cars on the whole offer the latest in fuel-efficient technology.

While U.S. automakers certainly are benefiting from the industry’s renewed vigor, the sales gains aren’t limited to the domestic giants. Foreign automakers also are enjoying revved-up sales. Honda (NYSE:HMC[5]) reported a 12% rise in U.S. auto sales in February, while Hyundai saw sales surge 17%. Nissan (PINK:NSANY[6]) said its U.S. sales for the month increased 15.5%, while Toyota (NYSE:TM[7]) saw U.S. auto sales climb 12%.

Solid as these figures are, however, they were dwarfed by German auto giant Volkswagen (PINK:VLKAY[8]), which racked up an incredible 43% surge in February U.S. sales in its namesake brand.

The numbers here don’t lie. On the import front, as well as on exports, auto sales are markedly improving. If carmakers can continue on this smooth road, their respective stocks also are likely to follow.

At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.

Endnotes:
  1. U.S. trade deficit had widened: http://www.census.gov/indicator/www/ustrade.html
  2. even in the face of rising gasoline prices: http://investorplace.com/2012/03/rising-gas-prices-detroit-finally-has-wheels-that-still-sell/
  3. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  4. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  5. HMC: http://studio-5.financialcontent.com/investplace/quote?Symbol=HMC
  6. NSANY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NSANY
  7. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
  8. VLKAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=VLKAY

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