Automakers End the Year With a Flurry

by: Wall Street Strategies

by David Silver

All the streamers and confetti have been cleaned up, the new calendars are on the wall, and it is the beginning of a new year (insert cheers here). The beginning of the month also means auto sales (insert less enthusiastic cheers here), so try to contain your enthusiasm. For the past three months, auto sales have been trending higher following the summer lull. December auto sales seasonally adjusted annual rate of sales (SAAR) broke 12 million vehicles for the third straight month (registering a SAAR of 12.26 in both October and November), and is poised to be one of if not the best month of 2010. Trucks again were the story as SUVs and light trucks (despite the national average for gasoline being above $3.00 per gallon) continue to be in high demand. Begs the question, is the government forcing the automakers to make vehicles that consumers don't want? Remember, that was an item that Congress held against the automakers pre-bankruptcy (only making SUVs, not really the smaller, and more fuel efficient vehicles), so is the government forcing Detroit into another similar situation?

In an interesting twist of fate, Ford (NYSE:F) supplanted Toyota (NYSE:TM) as the second largest automaker in the United States during 2010. Ford lost that superlative to Toyota during 2008 (Toyota then went to supplant GM as the largest automaker in the world during 2009), but for 2010, Ford reported sales of 1.8 million vehicles, up 17.1% year over year, compared to Toyota's 1.7 billion and only 0.7% increase. Chrysler was a big surprise for the year as sales improved 16.4% year over year and 18.3% for all of 2010. December marked the first month that sales surpassed the 100,000 mark. The end of 2009 seems so far removed when Chrysler reported sales declined of 42.1%, 30.4%, 25.5% and 3.7% in September, October, November, and December respectively.

Many analysts are using the fact that GM remains the Company's largest segment as justification for their buy ratings; I guess they didn't expect GM China sales to reach 2.35 million vehicles during 2010. While GM still gets the majority of its profits from North America, China is now officially its largest market. The Company has to deal with joint ventures (all foreign OEM's have to have a domestic joint venture partner to have access to the market) so clearly profits are going to be less. GM indicated it expects between 13.0 and 13.5 million vehicles to be sold in the United States next year (right in line with our estimates). The strength in Chrysler and Hyundai (OTC:HYMLF) as well as luxury brands is pushing our forecasts to the upper end of that range.

The Electric Vehicle revolution has begun, but don't expect to see any on the road just yet. Both Nissan (OTCPK:NSANY) (which produces the Leaf) and GM (which produces the Chevy Volt) are slowly rolling out the launch of the supposed game changer. The last tally I saw, there were fewer than 100 Volts delivered; the Leaf has been even slower.

So where does that leave us for 2011? I am looking for sales to increase approximately 10% year over year and for the strength in SUV and light trucks to continue. I am looking for a speed bump or two in the summer months as automakers scale back on some of the incentives. Additionally, I am looking for auto sales around the world, particularly in Russia, to drive growth for the industry. It will be tough to meet the new CAFÉ standards with the current lineup of vehicles so it is going to be interesting to see what type of incentives the government and automakers give for more fuel efficient vehicles. On the topic of government incentives, in the state of Louisiana, you can get a $25,000 tax credit for purchasing a Tesla (NASDAQ:TSLA) Roadster. When I read that, my jaw dropped, and I just thought I would share.