Good Start to the Year on Auto Sales

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

While the stocks of the auto manufacturers and their suppliers have been on and off the past few weeks, February auto sales – announced last week – were at the best level in years.  There are a lot of positive dynamics in this sector as the average age of a car is at record highs, and affordability is at its best level in quite a few years.  In the hey day of auto sales when people used to routinely do cash out refinancing to buy autos 16-17M annual sales was typical.  In the worst of the recession, that number dipped well below 10M.  The past few years we’ve seen a rate of 12-13M(ish) but February surpassed 15M on an annualized basis.  Hopefully this is not too affected by ‘seasonality’ as this extremely warm winter has many claiming demand in the malls (and auto dealerships) is perhaps being pushed forward.  We’ll know better in 3-4 months.

As an aside, with a ton of debt discharged during the bailouts and labor costs falling substantially the past 5 years as new contracts replace higher wage workers with lower, these numbers are a good omen for profitability in this highly leveraged business for the auto producers – and should trickle down to the auto suppliers as well.

Via CNNMoney:

• Consumers flocked to auto dealerships in February at the strongest pace in four years, hungry to buy fuel-efficient vehicles and to upgrade to newer trucks.  Industrywide U.S. sales rose 15.7%, according to sales tracker Autodata, which puts the annual pace of sales at 15.1 million vehicles when adjusted for seasonal factors. That’s a big jump from the 14.1 million annual sales rate in January and the best pace of sales since February of 2008.
• Experts said the U.S. automakers are far better prepared for the current gas price spike than they were four years ago, with far more high-mileage offerings.  “What a difference four years and a change in product lines make,” said Michelle Krebs, senior analyst with Edmunds.com.
• But U.S. automakers still sell more far more trucks than fuel efficient cars, and overall sales would have be far weaker without strong demand for trucks, which typically take a sales hit with gas price spikes.
• GM attributed the strong demand to an improved jobs picture and better credit availability, coupled with improvement in the housing market and consumer confidence helped to lift demand even in the face of higher gas prices.  Sales at GM were up only 1.1%, but that was far better than the forecast decline at the No. 1 automaker.
• One big advantage for pickup truck sales was a boost in home building. The construction industry and its workers are a prime market for pickup sales, and many in the industry have been delaying truck purchases in recent years due to depression-like conditions in that market.
• Ford, the No. 2 automaker in terms of U.S. sales, reported a 14.4% increase in sales.  It was helped by a 114% jump in sales of the compact Focus, the company’s key fuel-efficient offering. But truck sales also posted a 20.6% rise, led by a 25.9% increase in sales for the full-size F-series pickup truck.
• Ford spokesman Erich Merkle said demand for more fuel-efficient models picked up as the month progressed. He said that the company also saw strong demand for the more fuel-efficient offerings within each model, such as a six-cylinder version of the F-150 pickup rather than the eight-cylinder model.
• Chrysler Group reported its best February sales since 2008, up 40% compared to a year ago. The Fiat 500 subcompact car, the company’s most fuel-efficient offering, had its best sales month since the relaunch of the brand last year. But it also reported good sales for its Jeep and Ram truck brands, with sales of the Jeep Grand Cherokee SUV jumping 47%, while the full-size Ram pick-up truck posted a 22% gain.

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More via AP:

• Auto sales are growing so fast that Detroit can barely keep up.  Three years after the U.S. auto industry nearly collapsed, sales of cars and trucks are surging. Sales could exceed 14 million this year, above last year’s 12.8 million.
• The result: Carmakers are adding shifts and hiring thousands of workers around the country. Carmakers and parts companies added more than 38,000 jobs last year, with industry employment averaging 717,000 for 2011. And automakers have announced plans to add another 13,000 this year, mostly on night shifts.
• But there’s a downside. The newfound success is straining the factory network of the Detroit automakers, as well as the companies that make the thousands of parts that go into each vehicle. This could lead to shortages that drive up prices.  And it also has auto executives in a quandary. They got into trouble in the first place largely because their costs were too high. Now, they fear adding too many workers.
• The hiring is good news for communities around the country that saw hundreds of thousands of manufacturing jobs disappear. Starting in 2005, GM, Ford and Chrysler closed 28 factories and eliminated 88,000 jobs. Parts companies cut another 234,000.
• New jobs with auto companies don’t pay as well as the old ones. Under union contracts, companies can pay new hires around $16 per hour, a little more than half the pay of longtime workers.
• Six years ago, Detroit’s automakers were losing billions, in part because they had too many plants and workers. And union contracts forced them to pay workers even if plants were shut down. So automakers kept the factories running regardless of whether vehicles would sell in order to cover expenses. They built too many cars and trucks and sold them cheap, sometimes at a loss.  Now, they’re doing everything they can to keep costs under control.
• Auto factories in North America will reach 90 percent of their capacity if sales hit 14 million, says Michael Robinet, managing director of IHS Automotive Consulting, which forecasts auto production.
• Detroit automakers, which dominate truck sales, had far too many pickup factories just seven years ago. They have closed eight truck plants since 2005, removing the ability to build 2.25 million pickups a year. With only nine North American pickup plants left, they may have cut too much, McAlinden says.
• Last year Americans bought 1.8 million pickups, an 11 percent increase over 2010, as the economy improved and small and large businesses began replacing their aging vehicles. Pent-up demand is fueling the sales. The average age of a truck on U.S. roads has reached a record 11 years.

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