New motor vehicle sales rose again in February, as big incentives and a rebounding economy sent consumers back to the showrooms and caused fleet operators to invest in new vehicles. General Motors (NYSE:GM) reported a 46% increase in U.S. sales; Toyota’s (NYSE:TM) sales grew by 42% and Ford (NYSE:F) was up nearly 15% over the same month in 2010.
Despite the good news, the auto manufacturers’ shares slumped with the rest of the market on Tuesday. The culprit behind the decline: ongoing fears that spreading turmoil in the Middle East could force fuel prices through the roof, derailing the recovery and depressing future vehicle sales. Ford was down 39 cents to $14.66 on Tuesday; GM ended the day at $32.95, down 58 cents. Toyota closed down 46 cents to $92.84.
On Wednesday, automaker shares were showing some bounce, as crude prices retreated from earlier highs of the day.
If the storm clouds of higher fuel prices have a silver lining, however, it will be to make “greener” electric and hybrid vehicles more attractive to consumers. Indeed, that was the buzz at this week’s Geneva International Auto Show, where the prospect of a surge in gas prices has auto executives bracing for impact. “Customers in the U.S. are the most sensitive to oil prices,” Toyota Executive Vice President Takeshi Uchiyamada said in a Reuter’s report. “When they go up, hybrids fly out of showrooms and SUVs and pickup truck sales fall.”
Here are four things we learned from February’s U.S. auto sales numbers:
1. GM’s February sales boost was fueled by incentives that are far higher than those offered by its competitors. That makes the company’s sales growth very expensive, comparatively speaking. Truecar.com says the industry average for incentive spending in February was about $2,708 per vehicle; by contrast, GM’s incentive spending last month averaged $3,683 per vehicle. The company sold a whopping 207,028 vehicles last month, up from just 141,951 in February 2010. GM executives said they needed to offer the added incentives to build back brand loyalty in the aftermath of the company’s bankruptcy and that the incentives will start tapering off soon. That said, GM’s higher cost of sales is nearly certain to weigh on earnings in the near term.
2.Toyota is shaking off the impact of its many recent recalls very well, thank you very much. That includes recalls on another 2.2 million vehicles announced this week (attributed to yet another sticky accelerator problem). Car buyers last month seem to have forgiven (or forgotten) Toyota’s 20 recall campaigns since November 2009 and the attendant bad PR – snapping up 97,323 vehicles last month, compared to 64,691 in February 2010. The 0.5% drop in Toyota share prices on Tuesday was smaller by percentage than its competitors — and comes off of Monday’s 52-week high.
3. The fact that Ford posted lower percentage sales gains than did GM and Toyota doesn’t signal a fundamental weakness in the stock. Ford had the second-highest sales volume behind GM in February 2011 — 156,626 vehicles, compared to 137,644 in the same month last year. And because Ford offered fewer (and lower-value) incentives to consumers, even the lower rate of sales growth should have a positive impact on quarterly earnings.
4. All automakers are vulnerable to rising fuel prices directly and indirectly, with higher gas prices on the horizon and the possibility of an oil-induced stall in the economic recovery. In a perfect world, that should spur demand for electric and hybrid vehicles. If oil price shocks trigger a significant rise in global demand for greener vehicles, all companies in the sector will use their new electric and hybrid models to jockey for position in the U.S. and European markets. The companies are betting that a rise in “green” vehicle sales will mitigate strains on earnings caused by the slumping European market. Toyota, for example, is gambling big that hybrid models will boost its European sales by 10% between 2013 and 2014.
As of this writing, Susan J. Aluise did not hold an interest in any of the stocks mentioned here.
