According to TrueCar.com, August US auto sales will come in at a seasonally adjusted annual rate of 12.2 million vehicles. The rate would be unchanged from July, certainly not the plunge that the market sentiment reflects. TrueCar.com also believes that producers will widen their profit margins, as incentives appear to be down significantly from a year ago,
TrueCar.com estimates that America's top two automakers improved: General Motors (NYSE:GM) increased its share in August to 20.6%, while Ford (NYSE:F) grew share to 16.4%. The supply shortages of Japanese companies have continued to thwart a return to normal, even though there now appear to be signs of progress. Nissan (OTCPK:NSANY) returned to normal last month, while both Toyota (NYSE:TM) and Honda (NYSE:HMC) are now looking to September for full recovery.
We view a steady but improved 12.2 million run rate as a slight positive as it exceeds lowered expectations. While the market has been skeptical of recovery for most of 2011, the recent industry price retreat suggests fears of a double-dip recession.
Truck Rebound Still Waits For Housing
While GM may have increased its total share in August, it's decided to trim production of pickup trucks going forward. Last week, GM announced it over-estimated demand for trucks, as continuing weakness in housing and construction has crimped the need for new trucks.
For months the market has been concerned about GM's dealer inventory build, but the overriding fear has been whether GM will resort to costly new incentives to clear the imbalance. While GM has pledged to restrain incentive spending, the markets have remained skeptical.
We view GM's decision to cut production as a mixed positive, with both Ford and Fiat's (FIATY.PK) Chrysler unit benefiting from maintaining lucrative truck margins while GM suffers a bit of credibility loss due to its slow reactive response.
What To Look For
While monthly sales of autos are not normally market-moving events, this month could have more impact. Against a backdrop of severe pessimism caused in the past month by macro-recessionary panic, the weaker but still solid results should be comforting to investors. With implosion off the table, the general trend should be a reversion to mid-July valuation levels.
In addition, analysts should be pleased that incentive spending has continued to be contained and market share skirmishes have not reignited an all-out price war. Interestingly, August should be the first test of the post-bankruptcy industry discipline towards pricing. Most automakers have been optimistic for August sales growth (after the earthquake disruptions earlier this year), but this month's stall will be the first real bump in the road to that theme. If pricing remains firm through the soft patch and profit margins hold up, a new dynamic may merit better long-term franchise valuations.
So while we would not place too much faith in any monthly sales report, this August's set of data could be interesting on several levels. If the industry handles stall speed without resorting to margin-killing incentives, then investors may realize that for the first time in a long while, this time really is different.
Disclosure: I am long GM.