Another Robust Month of Auto Sales for the Detroit Three

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The US auto industry reported an overall sales gain of 8.5% to 1.285 million for April according to Autodata. General Motors (NYSE: GM), Ford (NYSE: F), Chrysler and Nissan posted double-digit increases in sales, experiencing the best April in the last six years. The growth was majorly led by the continued momentum in the housing sector which drove up the demand for pickup trucks. This worked particularly in favor of the Detroit Three as a key part their strength lies in the manufacturing of pickup trucks.

The growth rate in the auto sales has slowed down because of lackluster performance by some foreign automakers, but it is still healthy considering the sluggish economy. Honda Motor and the Hyundai-Kia Group saw smaller sales gain, while Toyota (NYSE: TM) and Volkswagen posted sales declines for April. Let’s take a closer look at the numbers.

The number race

GM’s sales increased 11.4% to 237,646 vehicles, led largely by strong demand for its Chevrolet Silverado and GMC Sierra pickups. Silverado sales increased 28% to 39,395 units while Sierra sales spiked 12.8% to 14,208. The Detroit maker’s Cadillac brand sales also saw an impressive growth of 34% to 13,230 units, while Buick sales were up 11.1% to 17,157 units and Chevrolet sales climbed 10.9% to 172,460 units.

Ford, the second-largest US automaker, enjoyed a sales gain of 18% to 212,584 vehicles in April to crush analyst estimates of 17% growth. The auto giant’s popular F-Series pickup’s sales rose 24% to over 59,000 units, causing the brand to experience its best April since 2006. The Ford Escape was also popular, with sales seeing a massive jump of 52% to 25,826 units. The midsized Fusion sedan witnessed an increase of 23.7% to 26,722 units, and sales of the automaker’s Lincoln luxury brand also went up 20.7%.

The third Detroit automaker, Chrysler, saw a sales jump of 11% to 156,698 units and recorded its best April since 2007. Though Chrysler-brand sales plunged 13%, this drop was offset by the incredible growth in the carmaker's pickup sales segment. The company reported solid sales of its Ram pickup, which experienced massive growth of 49% to 31,409 units. The Detroit Three reported a combined market share of 46.2%, an improvement against the combined 44.7% they held a year ago.

The competition

Nissan’s sales picked up 23% to 87,847, backed in part by the sales of its revamped Altima and Sentra compact. In addition, the carmaker plans to discount the prices of seven models that account for 65% of its sales in the US as a means of boosting future sales numbers. The price cuts range from $580 on the popular Altima to $4,400 on the Nissan Armada. Another Japanese carmaker, Honda, reported a sales increase of 7.4%. The growth is primarily attributable to the sales gain which came from its redesigned Civic, Accord and crossover SUV CR-V. Hyundai sales were up 2%, backed largely by huge demand for the Elantra compact.

Through all of this, lead auto player Toyota and German giant Volkswagen were the only automakers that reported a drop in sales.

Toyota witnessed a sales decline of 1.1% to 176,160 vehicles for the month. Increasing competition from fresh models hit the carmakers sales numbers, with its popular models such as Corolla and Camry facing stiff competition from the new Hyundai Elantra and Ford Fusion. In fact, Toyota's best-selling sedan Camry was overshadowed and dethroned by Honda’s Accord. Camry sales went down in the first three months of the year compared to last year's sales numbers. Sales of its Pruis went down as well by 21%.

Volkswagen’s sales declined 10% to 33,644 as sales of Jetta plunged 16.5% to 11,110 and midsize Passat went down 10.2% to 9,069 units. One of the main reasons why Volkswagen suffered a decline in sales is because of the company's heavy reliance on passenger cars and not pickup trucks.

While Toyota and Volkswagen lost during the month, the Detroit Three posted solid gains due to their domination of the pickup market. This is augmented by the loyalty some US buyers have for domestic auto manufacturers. Let’s delve a bit deeper into the reasons behind the rise in sales.

The driving forces

The revival in truck demand in the housing construction sector was the primary force behind the jump in pickup sales, with demand driving sales up by 20% in the first four months of this year. Sales of full-sized pickups make much more money for the automakers than sales of sedans and other consumer vehicles. The recovering housing sector was also backed by a drop in gasoline prices, further encouraging a boost in sales for trucks and SUVs.

Though the US economy’s recovery has slowed down and the unemployment rate is still as high as 7.6%, there are several other factors working in favor of the auto industry. Credit is becoming more easily available, with interest rates as low as 2.4% according to Buyers are also getting decent trade-in values for their older vehicles, encouraging new automotive purchases. These factors help to encourage buyers to replace their aging vehicles with fresh and redesigned ones.

The road ahead

2013 is going to be a good year for pickup trucks. The recovery in the real estate segment is going to benefit domestic players in a huge way. There is concern that the Japanese players might take advantage of a weaker yen to sell their cars at a discounted rate without compromising profits. Kurt McNeil, GM's chief of US sales, says that Japanese and Korean automakers are known for their heavy spending on incentives. This may not have an impact on US sales, however, as most of the Toyota, Honda and Nissan vehicles now sold in the US are actually manufactured in North America; this would prevent the automakers from taking advantage of lower production cost resulting from a weaker yen.

Some industry analysts still fear that a weaker yen could prompt Japanese players to give heavy incentives on their cars, causing a price war in the coming months that stresses profit margins. GM is focused ‘to remain competitive and disciplined’ even if this occurs and is working to launch a redesigned and more fuel-efficient version of its Chevrolet Silverado pickup. Similarly, Chrysler is planning to introduce a new Jeep Cherokee, while Ford plans to add another factory shift in Michigan to increase production on the Fusion to keep pace with its robust demand.

It will be interesting to see how well the Detroit Three manage to keep up their current momentum as the year continues. At the same time, it is also worth watching in the coming months to see how the Japanese and Korean players plan to increase their market shares in the US.

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Rajesh M. has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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