Just a few short months ago, experts hailed the U.S. auto industry as the one bright light in the manufacturing sector that would drive the nation’s economic recovery. But in the wake of July’s softer than expected vehicle sales, that light appears to be flickering.
U.S. vehicle sales rose to an annualized rate of 12.2 million in July, a 6% improvement over June’s dismal sales rate of 11.5 million vehicles and 3.3% better than the 11.8 million rate delivered in May. Still, these numbers are significantly below the 13 million vehicles automakers believed they would sell this year. Combined with stubbornly high unemployment and spending restraint among consumers, these soft sales could pose a huge challenge to an industry on the cusp of recovery.
But soft growth is still growth – a particularly important distinction for the Detroit 3. Once again, General Motors (NYSE:GM) led the pack delivering 214,915 vehicles in July – a year-over-year increase of 7.6% from July 2010. Ford (NYSE:F) came in second with 180,865 vehicles – an 8.9% increase from last July. Chrysler Group posted a 20% jump in sales, to 112,026, led by strong Jeep Wrangler sales. That was timely news for Chrysler, which was acquired by Fiat SpA last month after the Italian automaker bought out the U.S. and Canadian governments’ stakes in the company.
However, Japanese automakers Toyota (NYSE:TM) and Honda (NYSE:HMC) continued to battle back from the earthquake, tsunami and nuclear disaster in Japan this spring that devastated the automotive supply chain. Toyota’s July sales came in at 130,802, down 22.7% from 2010, while Honda reported sales of 80,502 – 28.4% lower than July 2010 deliveries.
Here are four things we learned from July auto sales numbers:
- Toyota and Honda are on the road to recovery. Although Toyota and Honda posted year-over-year declines in sales, their July numbers are still a lot better than they were in June. Toyota’s sales improved by 18% in July from the previous month. Honda’s July sales were about 4% lower than the prior month, but production is back on track.
- Automakers remain optimistic. Vehicle manufacturers are still optimistic that auto sales growth in the second half of the year will push U.S. totals into that 13 million range for 2011. A new survey by audit firm KPMG found that 62% of auto executives plan to hire more people this year, compared to just 52% of executives in other sectors. And a whopping 71% of auto executives plan to boost their capital spending over the next year, compared to 59% of executives in other sectors.
- Consumers are skittish. In June, consumers cut back on spending or the first time since September 2009, an ominous sign for an economic recovery. Although some of the slip can be explained by a decrease in food and energy prices that had spiked earlier in the year, consumers also eyed big purchases with caution.
- Vehicle prices are rising. If consumers do decide to brave the showrooms despite the sluggish recovery, they’re likely to find higher prices. AutoNation (NYSE:AN), which owns more than 250 dealerships nationwide, reported that average new-car prices rose by 5.5% in the second quarter of this year. Those consumers who opt to save money buying a pre-owned vehicle will feel some sticker-shock too: used car prices rose by 6%.
As of this writing, Susan J. Aluise did not hold an interest in any of the stocks named here.
