The latest Retail Trade data (pdf) indicated auto sales rose robustly through March, yet the same month's Motor Vehicle Sales data showed decreased sales. So what gives?
While sales for Motor Vehicle & Parts Dealers were reported up 0.9% in March according to the Retail Sales report, the annualized pace of unit sales were reported lower for the same month. Domestic vehicle unit sales marked an annual pace of 10.9 million for March, which was down from the 11.4 million pace reported for February. Much depends on how this data is annualized, and whether it is based on trailing twelve months or several months, or whether it is simply on one month's data. But, there is another more important factor tying the contrasting data together, and it is price increase.
The realized price of the average new car sold recently reached a record high of $30,748 in March of 2012. According to the Detroit Free Press and TrueCar.com, prices are up 6.9% from a year ago. It's not like the economy has improved equally. Every major carmaker is reporting significantly higher pricing. Among models, the Ford Focus is doing best in this regard, with the average new car sold for 19.5% more this year than last. GM's Chevrolet Equinox is up 6.5% against last year's price, while the Toyota Camry 2012 version is attracting 9.5% more than last year's model.
Across all models, Hyundai Motors (OTC: OTC:HYMTF) leads the pack, with its average ticket up 9.4% year-to-year. Nissan (OTC: OTCPK:NSANY) is next, with its average realized price up 7.4%. Chrysler is realizing 6.4% more this year. Volkswagen (OTC: OTCPK:VLKAY) is seeing 5.6% more, while Honda (NYSE: HMC) is 5.5% better. Toyota (NYSE: TM) is earning 4.5% more across all brands, while Ford (NYSE: F) is getting 4.0% more. GM (NYSE: GM) lags the major automakers, seeing only 3.4% more this year on the ticket. Even so, GM's average realized price is tops among the majors at $33,289.
According to the reports, the reason for the economic value-add is mostly due to improved supply/demand dynamics. There's less production capacity and autos available for sale now than during the golden years of free money and incentives galore. There are fewer dealers and the average dealer is carrying fewer cars on the lot. Carmakers too are producing less, after having killed some models and tempered production of others. Finally, those who can afford a car under more time-tested criteria, are choosing value-added technological perks, and lifting the price in the process.
It's a seller's market now, plain and simply put. Meanwhile, it appears demand is picking up and for all the right reasons. Demand is increasing slowly, at a sustainable pace, partly because of the patience of automakers. Instead of chasing market share and intangible and perhaps often inconsequential brand value gains (for the established), auto makers are seeking to maximize profit per vehicle sold. It's a good thing, but I suppose it's the result of forced introspection through the bailout process in the U.S. and other struggles outside the U.S. group of producers.
In any event, optimal production is a value added scenario for auto company investors. I expect that will be reflected in the long-term stock performance of the automakers, if they can keep to manageable growth. They will certainly be tested, given their expansion into emerging China, India and beyond, where they will compete on an often unfair playing field against less civilized and improving competition.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.