September Auto Sales Roundup

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

Following the solid trends we saw in August, September was another strong month for auto sales. The SAAR for September came in at 14.94 million units, the highest figure we’ve seen since 14.95 million units in March 2008. Let’s take a look at the major industry players.

Ford

Best Ideas Newsletter holding Ford (NYSE: F) saw sales slip 0.1% year-over-year to 174,976 units, but retail sales grew 4% year-over-year. The numbers were approximately as expected, and we saw exceptional results from small cars (up 73% YoY), driven by powerful momentum from the Ford Focus (up 91% YoY). With fuel prices elevated, consumers are flocking toward fuel-efficient models, which is right in Ford’s wheelhouse. As a result, aggregate car sales grew 2.6%.

Utilities were surprisingly strong, in our view, surging 9% year-over-year. Sales of the new Escape accelerated nearly 15%, and sales of the Explorer increased considerably, growing 19%. The only weakness in the report came from truck sales, which declined almost 8%. Though the F-series continues to sell at record levels thanks to more fuel-efficient models, the firm clearly suffered from its decision to seize production of the Ranger pickup in the US. We think Ford had assumed consumers would simply switch to the fuel efficient versions of the F150, but instead it looks as though they are flocking toward the Chevrolet Colorado, which saw sales grow 30% year-over-year.

Ultimately, the firm is losing some share it had acquired in 2011 to the foreign manufacturers, but this is not a surprise and does not change our thesis on the company. During the innovation lull of the early 2000’s, Honda (NYSE: HMC), Toyota (NYSE: TM), and Nissan stole meaningful market share from the US manufacturers, so both Ford and GM will have to fight tooth-and-nail to regain market share. Still, we think Ford offers fantastic total return potential from current levels.

General Motors

GM’s (NYSE: GM) sales were slightly better than expected, with sales growing 1.5% year-over-year to 210,245 units. Total retail sales grew 2.8%. As with Ford, small cars drove sales gains, growing 97% year-over-year. Even the much maligned Volt saw sales accelerate nearly 3-fold, posting its best ever month, and the Sonic grew over 425%. We were also surprised to see Buick sales increase 8%, as it appears the brand is starting to regain some of its footing--though its brand reputation is still a far cry from what it was in the 1950’s.

Unfortunately for GM, one of its strongest segments, light trucks was incredibly challenged during the month of September. Sales of the Escalade, Yukon, Tahoe, and Suburban all fell at least 38%, though management cited the timing of fleet orders as the major downward driver. Still, we think consumers aren’t very interested in large gas guzzlers at this time, as evidenced by the surge in popularity from small, fuel efficient vehicles. Further, sales of the Silverado fell nearly 17%, suggesting the F-Series and Toyota’s pickup offerings (which grew 45% year-over-year) are more favored alternatives.

Though shares are now trading in the lower end of our estimate of its fair value range, we were encouraged by the strong August performance and hedge-fund manager David Einhorn’s positive remarks on the firm during the Value Investor’s Conference. If the company can earn $6 per share in 2014, as Einhorn anticipates, we think shares will undoubtedly converge towards our fair value estimate, if not, the high end of our fair value range.

Toyota Motor

Toyota, coming off of last year’s supply-chain disruption, saw sales increase 41.5% year-over-year to 171,910 units--even better than consensus estimates. As with Ford, Toyota has an incredibly strong small car lineup, driven by the Prius, which more than doubled sales, and the Corolla, which saw sales increase 43%. As a result of last year’s supply-chain issues (resulting in easier comparisons), sales strength at the company was broad based. However, we also believe it is making some market share gains, particularly against GM. We already noted the share improvement the firm garnered in pickups, but it also appears the decline in light truck/SUV sales at GM coincides with strong sales gains from Lexus SUVs, which increased over 36% year-over-year.

Overall, Lexus sales grew 36%, and we think the luxury car maker may be pushing back against Audi (VLKAY), which has stolen much of the same mid-tier luxury market. Nevertheless, we thought Toyota’s results were very strong, and we think the automaker remains one of the best run firms in the world. We think shares are undervalued, and we are strongly considering the name for addition to the portfolio in our Best Ideas Newsletter.

Honda

Honda also posted better-than-expected sales gains due in part to easier comparisons stemming from the supply-chain disruption in the year-ago period. Sales surged 31% to 117,211 units in the period. The newly redesigned Accord led the way, with sales growing 57% year-over-year. Civic sales also increased 57%, while CR-V sales grew 14%. We are a bit surprised by the results, especially the strength of the Civic, because we weren’t particularly impressed by the redesigned model, though it received fairly strong reviews. Shares trade at the low end of our fair value range, but we aren’t particularly interested in the company at this time. Its peers represent much more interesting opportunities.

Volkswagen/Chrysler

Though other automakers have posted strong results, Volkswagen’s resurgence has been the US story in 2012. Sales surged 34% year-over-year to 36,339 units, as the company posted its strongest September since 1972. In fact, nearly every month this year has been Volkswagen’s strongest since 1972, as the company has refocused its attention to designing cars specifically for the US, rather than simply importing German models. The Passat, as well as several Audi models, have surged in popularity and continue to drive market share gains.

Chrysler also continues to return to prosperity, with sales surging 12% year-over-year to 140,041 units. Strength was broad-based across all brands, with the Dodge Avenger and Fiat 500 growing particularly quickly, up 89% and 51%, respectively.

Want to Learn More?

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Valuentum hold shares of Ford in its Best Ideas Newsletter portfolio. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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