Seeking Alpha
Research analyst, value, growth, event-driven
Profile| Send Message|
( followers)  

Auto sales for the month of May were released on Friday, June 1. The headline numbers were strong, led by Toyota (NYSE:TM), which saw an 87% increase year over year. The Japanese automaker was reeling from the March 11, 2011 earthquake and tsunami and production around the world was affected and inventories were at an extremely low level. Since that time, inventories and productions have returned to more normal levels, but sales for Toyota have averaged a 26.3% gain through the first five months of the year.

Ford (NYSE:F) and General Motors (NYSE:GM) also put in double-digit percentage growth rates, while Chrysler reported sales growth of 30.1% year over year. Year to date, Chrysler sales are up 32.7% compared to 2.0% for GM and 6.5% for Ford. Every automaker, save for Kia and Porsche, saw double digit growth during May shrugging off economic weakness worries. Analysts are saying there is pent up demand as there is continued strong foot traffic into dealerships.

Ford and GM bounced back from difficult April's delivering 12.6% and 10.9% growth respectively. GM announced strong sales in China and this comes on the back of news during the month that Berkshire Hathaway (NYSE:BRK.A) purchased 10 million shares. For the most part, it was a good month for GM, with Chevrolet sales rising 10%, and both Buick and GMC sales increasing 19%; however, its Cadillac division saw a decline of 15%. GM has spent much time and money to rebuild the Cadillac name, and this is a difficult pill to swallow. It is not yet a trend for the Detroit based automaker, but it is a concern moving forward.

Americans bought 1.33 million new vehicles last month, said researcher Autodata Corp. May's seasonally adjusted annual rate of sales (SAAR) was 13.8 million vehicles, up from an 11.7 million pace a year ago, but down from April's 14.2 million. It was the first month this year that annualized sales have fallen below 14 million cars and light trucks. The following table outlines some of the automakers' monthly sales tally, as well as the year-over-year change, and the change year-to-date.

Company

Vehicles

% Change Y/Y

% Change YTD

General Motors

245,256

10.9%

2.0%

Ford

216,267

12.6%

6.5%

Chrysler

150,041

30.1%

32.7%

Toyota

202,973

87.3%

24.2%

Nissan

91,794

20.5%

12.1%

Honda

133,977

47.6%

7.8%

Volkswagen

38,657

28.4%

35.6%

Porsche

2,852

1.2%

3.5%

Hyundai

67,019

13.2%

11.1%

Kia

51,771

7.4%

18.7%

Mazda

20,357

13.9%

7.6%

Mercedes

25,259

24.4%

21.4%


(click to enlarge)

GM, Ford and even Chrysler (to a lesser degree) are working to get their pension obligations in order. On Monday morning, GM announced it would be offering 118,000 white collared workers a lump-sum buyout and will shift others to a plan Prudential Financial will manage and pay starting in January 2013. GM is expected to take a charge of between $2.5 billion and $3.5 billion for the transfer/buyout. It doesn't come cheaply, but it is a good move for GM, and something that Ford is trying to emulate. GM was able to slash most of its obligations during bankruptcy, but Ford was unable to shed some of those onerous liabilities. However, since being reinstated to non-junk bond status, Ford has been attempting to make some sweeping changes to its balance sheet. Getting rid of pension liabilities would be a strong strep in the right direction.

Toyota's month was an aberration, but the other companies reported a strong month of May. Each company is saying there is strong pent up demand out there, but I question what is bringing Americans into showrooms now that wasn't here a month ago? The jobs data continues to flounder, while the news out of Europe continues to be grim. There is a lack of confidence in the U.S. economy right now and that is being shown through the monthly sales figures. For the first time this year, the industry's SAAR slipped below 14 million units. I just don't really see all that pent up demand, let alone what will release it into the market. GM is almost (I say again almost) to the point where it would be a compelling value play, but it is not there yet. Ford still looks strong, but is stuck in the mud. Toyota is going to have some high expectations for the next few months. Chrysler has been doing extremely well over the past five months, and it should continue through the summer months. Additionally, it gives the Fiat brand more time to gain a foothold in America, beyond the 500, as other models will be rolled out in the coming months.

I still think Ford is the best investment in the industry as GM continues to be under pressure, Toyota wont realize this type of growth through the rest of the year, and many of the other automakers are so thinly traded (FIATY.PK for example) to really get an accurate investment.

Source: May Auto Sales: Strong But Fall Short Of Expectations