Auto Industry Will Drive Ahead in 2013

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

It looks as if happy days are here again for the U.S. automotive industry. Car sales drove ahead by more than 13% in 2012 with U.S. light vehicle sales rising to 14.5 million units. That is the fastest growth rate in more than two decades. It is also the third straight annual gain of at least 10%. Such a streak has not happened since 1973! 

This is obvious good news for Detroit's Big Three – General Motors (NYSE: GM), Ford Motor (NYSE: F) and Chrysler, which is now majority-owned by Italy's Fiat S.p.A. ADR (NASDAQOTH: FIATY). Their December sales figures were impressive. GM saw a gain of 5%, Ford's sales rose by 2% and Chrysler was the best of the bunch with a 10% jump. 

Overall for the year, GM saw a 3.7% rise, Ford enjoyed a 4.7% gain and Chrysler outperformed again with a 21% increase in sales. Quite a turnaround from the near-collapse of the industry in 2009! 

The question now on investors' minds is what the industry can do for an encore. Can the industry continue revving its growth engine?

Industry Optimism

For now, the answer seems to be yes. The seasonally-adjusted annual rate of sales, or Saar, for December was about 15.5 million light vehicles. That is up 14% year-on-year. This figure led Jessica Caldwell, senior analyst for Edmonds.com, to tell the Financial Times “December sales make the biggest statement with not only the highest Saar of the year, but also the highest Saar of any month since before the recession started.” 

GM's vice-president for U.S. sales operations, Kurt McNeil, agreed with Ms. Caldwell. He told the Financial Times that he expected his company's light vehicle sales for 2013 to rise between 3.5% and 7% from the 2012 level. 

These views mesh with the outlook globally for the industry that, with Europe excepted, should have a good year in 2013. 

The Financial Times pulled together data from industry consultancies IHS, LMC Auto and PwC. The combined forecast by these firms is for the global sales to total 82.4 million light vehicles this year, a rise from 80.6 million in 2012. 

The rise is expected to be led by demand in two countries – the United States and, of course, China. The consultancies' combined forecast is for a rise of 5% in U.S. sales for 2013, pretty much in line with Mr. McNeil's outlook.    

Optimism Justified?

Is this industry optimism justified? If economic conditions do not deteriorate, it is. After all, the average age of Americans' vehicles is about 11 years according to researchers Experian Automotive and R.L. Polk & CO. Eventually these vehicles will break down and need to be replaced. 

But the problem is that the fate of the U.S. economy will rest largely on the shoulders of U.S. politicians. Congress punted the really tough decisions on fiscal and debt matters a month or so into the future. 

But the question about taxes for the vast majority of Americans has been settled, which should help the U.S. auto industry. The U.S. chief operating officer of Fuji Heavy Industries [Subaru] ADR (NASDAQOTH: FUJHY), Tom Doll, told Bloomberg that demand for vehicles should be boosted. He said, “With the fiscal cliff now behind us, people now realize they are going to have the money available that they would have had maybe to put on taxes.” 

But there are other “cliffs” lurking ahead that Congress must deal with; The likely outcome of these “cliff-hangers”? U.S. politicians will do as their European counterparts and just boot the problems into the future with plenty of monetary lubricant from the central bank aiding the economy. The only difference is the U.S. politicians will use a football instead of a soccer ball. 

As long as the politicians don't totally mess things up, the health of the U.S. economy and automotive industry should continue to improve in 2013. 


tdalmoe has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors Company. 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure