December is historically one of the best months of the year for auto sales, and the final month of 2012 didn't disappoint. In total, sales rose 9% during the month, compared to December 2011, and were up a strong 19% compared with November. The seasonally adjusted annualized rate of sales (SAAR) was 15.37 million vehicles, according to market researcher Autodata Corp. For the full year, sales rose 13.4% to 14.5 million cars and light trucks, the highest point since 2007. Despite the weakness in the overall economy and lackluster recovery, auto sales continued to come in better than expected, and surpassed my 14.2 million forecast.
Consumers shrugged off the Fiscal Cliff debacle and went into showrooms for most of the month, as incentives were higher with year-end deals. A little fact, the average age of vehicles on the road today has reached 11 years. The developments of the Fiscal Cliff debate will have mixed results on auto sales. The increased tax rates on individuals making more than $400K per year should not have a material impact on sales (could be slightly negative for light trucks); however, the increase in the payroll tax will definitely hit consumers. For the "average" American, the increased tax rates will likely take $1,000 out of Americans wallets and pocketbooks.
A potentially good sign for the economy was the strength in trucks during the month. General Motors (GM) said Chevy Silverado sales increased 6.1% and GMC Sierra improved 13.1% year over year. There is a large "but" though, as the Company was forced to increase incentives dramatically to pare back its 139 day truck inventory as of the end of November. Through December, GM had 80 days of supply of trucks; partially as a result of a longer shutdown of production and partially due to the increased incentives.
Ford's (F) sales improved only 1.9% year over year, but still surpassed the 1.2% improvement that the Street was expecting. For the full year, Ford sold more full-size trucks than GM (which include the Chevy and GMC brands), and truck sales represented 13% of total sales during the month, one of the strongest figures of the year.
Year to Date Change
General Motors got some good news from the government during December, as the Treasury announced it would shed 40% of its 500 million share ownership, or 200 million shares, before the end of December (that should have happened by now) and the remaining 300 million will be sold over the next 12 to 15 months. It is all but assured that taxpayers will lose a lot of money with this deal. In a piece I authored following the news, I said that GM would be a good trading investment and see a quick pop with the news; the stock is up almost 17% since that time. I would begin to scale back that position at this time, especially considering the news today that GM was recalling 69,000 SUVs and trucks due to a steering flaw that could cause the vehicle to roll away (yes roll away). There is still a lot of inventory out there, and with the incentives, the sales are lower margin. GM is rebuilding, and I just don't think it's quite there yet. It is getting closer, but still the hurdles are too substantial.
My favorite in the industry continues to be Ford. The Company has seen a resurgence in its stock price of late and broke through resistance at $11.50 and is up more than 33% over the past three months. The stock was under pressure from April through October, but has since rebounded nicely as it continues to gain market share. Additionally, with the economies of Europe not getting any worse (there are even some bright spots), one of the major overhangs for the Company is slowly being removed.
Despite the move over the past three months, I still think there is some serious upside to Ford. I think GM moves higher, but primarily as a result of the adage a "rising tide lifts all ships." There are some expectations that auto sales will surpass 15 million vehicles during 2013. I am a little more bearish, but still see a good year for auto sales ahead. My forecast for sales is approximately 14.8 million units. That being said, 2012 ended well, and for automakers, the hope is that the momentum continues into 2013.
Disclosure: I am long F.