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

by Susan J. Aluise | January 4, 2013 10:27 am

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

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[1]), General Motors (NYSE:GM[2]), Toyota (NYSE:TM[3]) and Fiat SpA’s (PINK:FIATY[4]) 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:

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[6]. 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[7]. Fiscal cliff fears drove the Conference Board’s monthly Consumer Confidence down six points last month[8] 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.

Endnotes:
  1. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  2. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  3. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
  4. FIATY: http://studio-5.financialcontent.com/investplace/quote?Symbol=FIATY
  5. sparking its upcoming Super Bowl ad blitz: http://www.adweek.com/news/advertising-branding/lincolns-social-super-bowl-spot-new-branding-strategy-145653
  6. to hit 15.3 million in 2013: https://www.polk.com/company/news/polk_expects_2013_u.s._new_vehicle_registrations
  7. InvestorPlace’s Louis Navellier points out here: http://investorplace.com/2013/01/the-fiscal-cliff-deal-a-day-late-but-not-a-dollar-short-aap/
  8. down six points last month: http://www.conference-board.org/data/consumerconfidence.cfm

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