Not So Dog Days Of Summer For Automakers

|
 |  Includes: F, GM, HMC, KIMTF, NSANY, TM
by: Wall Street Strategies

By David Silver

Ahead of the monthly auto sales figures, the expectation was for another bad month. It seems that expectations were adjusted low enough that the mediocre improvement is being seen as a strong month.

Just look at my title; the headline on wsj.com is much less creative with the simple "U.S. Auto Sales Rise In August." However, what seems to be going unnoticed by the market is that General Motors (NYSE:GM) expects industry seasonally adjusted annual rate of sales (SAAR) to be at the low end of the 13.0 million to 13.5 million range. That is down from previous months. And Ford (NYSE:F) still has an estimate of between 13.0 and 13.5 million units. Something has to give. In total, August sales rose 7.5% to 1,072,283 cars and light trucks, according to researcher Autodata Corp, while SAAR in August was 12.12 million vehicles, down from July's 12.23 million but up from the year ago figure of 11.47 million.

One of the biggest winners for the month was Chrysler, again, led by the strength in the Jeep brand. The company even sold more than 3,100 of the Fiat 500. I have started seeing them on the street, and I must say, my head turns every time I see one. (I am not sure if it is because it looks so out of place, or because I am an analyst and have a mental count of the newer vehicles on the road.) Kia (OTC:KIMTF) was another company that continues to post strong sales, while Nissan (OTCPK:NSANY) has bounced back from the earthquake much quicker than its other Japanese counterparts. During the month, Nissan's sales were up 15.4%, while Toyota (NYSE:TM) and Honda (NYSE:HMC) were down 16.1% and 27.2%, respectively.

For most of the summer, fleet sales have been keeping the automakers afloat. However, during the month (and it is a positive), sales to fleets decreased as a percentage of the total. Chrysler's sales to individual customers at dealerships rose 42%. GM's retail sales grew by 22%. That is definitely a plus for the industry, and many expect the trend to continue through the end of the year. Most of the automakers indicated that they expect September to be better than August. There were definitely some events during the month that could have kept consumers out of showrooms, namely the debt ceiling debacle, disappointing economic data, and even the extreme volatility in the stock market.

Click to enlarge

Click to enlarge

Auto sales broke a string of three straight months of bad results. But the question is, can consumers shrug off a weakening economy and venture back into the showrooms during September? We have seen many indications that incentives will be on the increase in September, and possibly through the end of the year. Production targets, for the most part, remain unchanged. In previous months, we have brought up GM's bloated inventory as a problem source, especially with the new model years being released. We are a little more bearish on the remainder of the year for the automakers. I do expect Toyota and Honda to put in better months through the end of the year, but I do think it will be a stretch to reach that 13.0 million to 13.5 million target.

My target is for an industry SAAR between 12.6 million and 12.8 million for the full year. I had consistently been toward the low end of the analysts on the Street with respect to expectations for the full year. And over the past six weeks, many have begun to slash their targets.