Auto Growth Slows as Comparisons Become Tougher
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Though gains are not as strong as they were in the beginning of the year, we thought auto sales for July in the US were relatively resilient. After aggregating results from the US automakers, it seems as though the SAAR for July was around 13.8-14.0, which is slightly lower than the pace we’ve seen earlier this year. Still, we think domestic auto sales in the back half of 2012 will continue to be strong.
Ford’s (NYSE: F) total sales in July fell 4% compared to a year ago due to lower fleet sales. However, retail sales grew 2%. The F-Series edged up just 0.4%, but sales of the Fusion and the Explorer were exceptionally strong, growing 20.7% and 14.3%, respectively. We aren’t surprised to see strength in the Explorer thanks to lower gas prices and increased fuel efficiency, though we wonder if it may be stealing sales from the Escape. We also think the shift in product mix that seems to be occurring could be favorable for the firm’s profitability. Though Focus and Fiesta sales have fallen, sales of the higher priced, higher margin vehicles like the Taurus, Fusion and Mustang have accelerated. It could also speak to improved consumer sentiment. Fleet sales will face tough comparisons since the Crown Victoria was discontinued, but it’s important to remember that retail sales tend to be more profitable than fleet sales.
General Motor’s (NYSE: GM) results weren’t quite as strong, as July fleet sales fell 6% and retail sales dropped 3%. Chevrolet’s retail sales dropped 5.4%, which we think can be attributed to a weak stage of the product cycle and Ford taking market share. We think there’s simply more energy and excitement surrounding Ford’s mid-sized and full-sized car line-up. However, Cadillac retail sales surged 21%, suggesting the luxury brand is regaining some of the traction it has lost over the past few years. Sales of the Escalade grew 23% year-over-year, supporting the thesis that lower gas prices can spur SUV sales.
Sales at Chrysler continue to grow, up 13% for July compared to a year ago. According to its estimates, the sales pace did not slow much, if at all, from June. Nissan (NASDAQOTH: NSANY.PK) saw sales rise 16% during the month, driven by a sales increase of 57% at Infiniti, the firm’s luxury brand. Toyota (NYSE: TM) sales surged 26% during July, though that is mostly a result of last year’s supply-chain disruption. We aren’t particularly impressed by Toyota’s recent product mix, but the firm has built such a solid reputation for quality over the past 20 years that we think that for many consumers, Toyota is the only option.
Although the rate of car sales is not quite as high as it was in the first half of the year, we think auto sales will continue to be strong for the rest of 2012. According to a recent survey from Ad-ology, 36% of Americans plan to purchase a new vehicle within the next 12 months. Even if that number is high, the figure still means new auto purchases will be robust in coming periods. We continue to believe Ford is the most undervalued auto OEM, and we hold the firm's shares in our Best Ideas portfolio.
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