December Auto Sales Pop; Now, a Cautious Eye Toward 2013

Automakers not invulnerable to a potentially cooler economy

   

It’s official: U.S. vehicle sales accelerated again in December.

Pent-up demand drove consumers to dealer showrooms, delivering the industry’s best annual performance since pre-recession 2007. But even though the industry posted annual sales in the 14.5 million range in 2012, manufacturers can’t take success for granted — momentum or not, if the economy turns south, automakers will hit a big speed bump. But first, the good news:

A Strong 2012

Ford (NYSE:F), General Motors (NYSE:GM), Toyota (NYSE:TM) and Fiat SpA’s (PINK:FIATY) Chrysler all posted full-year and December sales growth, with Chrysler and Toyota leading the pack. Americans increasingly replaced old vehicles (at an average age around 11 years), and attractive credit also helped deliver the strong results.

Here’s the breakdown of automakers’ December and full-year results:

  • Chrysler: The Fiat SpA unit finished a strong year even stronger as its Dodge brand drove December sales up by nearly 10% compared to 2011′s 152,367 vehicles. Chrysler’s total 2012 sales were 21% higher than the prior year. Passenger cars were the stars in December as Chrysler posted a year-over-year gain of 30%. Chrysler’s biggest hits last month included the new Dodge Dart compact and Ram pickups, while the Jeep brand slipped.
  • Toyota: Call it a case of too-great expectations: Toyota’s December vehicle sales jumped by 9%, but the carmaker missed forecasts of 13% growth. Still, it’s hard to ignore December sales that hit 194,143 vehicles, and if you add up all TM’s 2012 numbers, sales rose a whopping 26.6% over 2011 totals. The most popular models in December were the redesigned Avalon, the Corolla and the perennially popular Camry. With a $1.4 billion court settlement for faulty acceleration finally behind it, Toyota could be poised for stronger growth in 2013 — if the U.S. economy cooperates.
  • General Motors: GM’s December sales rose by nearly 5% to 245,733 vehicles, although full-year sales were only 3.7% higher than in 2011. Big winners included Chevrolet passenger cars like the Cruze, Sonic and Spark, as well as the Buick Verano. But GM also boosted incentives to fuel sales of its light trucks, including the GMC Sierra and Chevy Silverado pickups. It’s always worth keeping an eye on dealer inventory levels because that reflects actual retail sales. Even with the incentives, GM dealers ended 2012 with an 80-day inventory of full-size trucks — still much higher than the optimal 60-day supplies.
  • Ford: Ford’s December performance was subdued compared to its peers. The 212,902 light vehicles Ford sold in December was a mere 1.6% higher than in December 2011. Although Ford’s full-year sales topped 2.2 million, that’s just 4.7% higher than a year ago. The bigger story is what’s behind those lackluster results: The Ford Focus compact was a big winner, and Ford’s F-series remains the one pickup that rules them all, but the mid-size Fusion sedan is ailing and the recalls have tarnished the post-makeover Escape sport utility. Ford’s biggest challenge could be its Lincoln luxury brand, which continues to suffer — sparking its upcoming Super Bowl ad blitz. Unfortunately, the specter of Honest Abe emerging from the mist looks more like a trailer for Abraham Lincoln: Vampire Hunter than a pitch to revive the flagging luxury car brand.

Looking Ahead

Automakers’ optimism was further buoyed by sunny sales forecasts for this year: Industry research firm Polk expects U.S. new vehicle registrations to hit 15.3 million in 2013. With as many as 43 new vehicle launches and 60 redesigns likely during the course of this year, higher showroom traffic should translate into stronger sales.

However, Polk’s predictions come with a flashing freeway sign. According to Anthony Pratt, Polk’s director of forecasting/Americas:

“The auto sector is likely to continue to be one of the key sectors that lead the U.S. economic recovery, however, we don’t expect to realize pre-recession levels in the 17 million vehicles range for many years. However, our baseline forecast hinges on Washington’s ability to draft a budget plan that will avoid $600 billion in spending cuts and tax increases.”

Despite the eleventh-hour deal to avert the fiscal cliff, all is far from resolved on the spending front, as InvestorPlace’s Louis Navellier points out here. Fiscal cliff fears drove the Conference Board’s monthly Consumer Confidence down six points last month to only 61.5%; only 17.8% of consumers believed business conditions will improve over the next six months.

For investors in auto stocks, the 2013 outlook comes down to this: cautious optimism. Pent-up demand and exciting new models are fueling strong U.S. vehicle sales right now. But while the Bush-era tax cuts were extended in the fiscal cliff deal, the payroll tax cut was not — so all consumers will feel a bigger tax bite this year.

Besides, the fiscal cliff agreement dealt with taxes, not spending, meaning lawmakers will enjoin the sequestration battle again soon. It doesn’t help that the U.S. hit the debt ceiling again this week, threatening a potential government shutdown in the spring if lawmakers at both ends of Pennsylvania Avenue can’t ink a deal.

Auto sales were strong drivers for the U.S. economy in 2012, but they’re just as vulnerable as other consumer cyclicals if the economy cools.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/01/december-auto-sales-pop-now-a-cautious-eye-toward-2013/.

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