General Motors (NYSE:GM) is off to a good start to the new year. Auto manufacturers reported their January sales for the U.S. market earlier this month, and General Motors had "the best January sales performance in eight years". The U.S. continues to be the most important auto market by far for Ford Motor (NYSE:F) and General Motors, and the economics are looking good to support automakers' sales in 2016.
Last week's jobs report was encouraging, too. The Bureau of Labor Statistics said on Friday that U.S. employers created 151,000 (nonfarm) jobs in January, underscoring that the U.S. economy is chugging along at a good clip. Including the job gains from last month, the unemployment rate in the United States fell below 5%. That's right: U.S. unemployment now stands at only 4.9%. There is still a sizable number of Americans out of work and/or underemployed, but the trend has been without a doubt very positive in 2015. It's great to see this trend extends into 2016 as well.
A good start to the year for General Motors
In January 2016 General Motors' retail sales surged 8.9% Y/Y to 163,055 vehicles on the back of strong demand for Chevrolet (+11.6% Y/Y) and Buick (+44.8% Y/Y). GM's total January vehicle sales climbed 0.5% from 202,786 in 2015 to 203,745 in 2016. January 2015 itself was a very strong sales month for the U.S. auto industry with sales up 18.3% Y/Y for General Motors. Put differently, the bar was already set very high for GM this year.
Ford Motor, on the other hand, did not as great as General Motors with a Y/Y sales decline of 2.6% in January that missed the consensus estimate that called for a 2.4% decline.
In light of encouraging economic news from the labor market, though, automakers have likely got a couple of good quarters ahead of them. GM's chief economist Mustafa Mohatarem hit the same mark earlier this month when he said the following:
We believe industry fundamentals such as the age of the vehicle fleet, well managed inventory levels, firm used car pricing, good credit availability and low fuel prices will support higher industry sales in 2016.
Strong kick-off to the year lends credibility to General Motors' capital return plan
General Motors and Ford Motor have been in somewhat of a competition in January over which company can make their shareholders the happiest in terms of capital returns.
While Ford Motor chose to declare a special dividend of $1.0 billion in order to demonstrate its confidence in this year's earnings, General Motors preferred an increase in its base dividend of 6% to $0.38/share and said it will buy back more stock.
The big difference here: General Motors' made a longer term capital commitment by boosting its base dividend while Ford Motor's special dividend is likely to be a one time thing, and the company will probably revert back to regular dividend payments in 2017.
Essentially, General Motors January (retail) sales showed continued high customer interest in GM's vehicle fleet, even though January is traditionally not the strongest sales month. In addition, the bar was set high for General Motors after sales rose 18.3% Y/Y in January 2015. A robust employment picture, low gas prices and high expected capital returns continue to support an investment in GM for income and capital growth.
Disclosure: I am/we are long F.
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