After a less than stellar May, auto sales for the month of June came in stronger than expected despite the weakness in the economy. Ford (F), General Motors (GM), and Chrysler delivered better than consensus months, while Toyota (TM) and Honda (HMC) bounced back from a weak 2011 when there were part shortages following the earthquake and tsunami. Toyota realized 60.3% growth and Honda delivered 48.8% growth compared to the June of 2011.
General Motors reported it sold 248,750 vehicles during June; a 15.5% increase compared to June of 2011 and marks the best monthly tally since September 2008. Chrysler also reported a strong month, seeing growth of 20.3% year over year. So far this year, sales are up 30.3% compared to the first six months of 2011. Additionally, June marked the 27th consecutive month of sales gains. Ford delivered sales growth of 7.0% year over year and June marked the third month out of the past four to see sales of greater than 200,000 vehicles.
As fuel prices were on the rise, light truck and SUV sales came under pressure, but the recent swoon in oil and gasoline prices have allowed for a spike in light truck and SUV sales. General Motors saw truck sales increase 18.5% year over year, while Ford experienced 11.3% growth. Chrysler's truck sales increased 12.5% and overall, truck sales were 19.1% higher year over year. This is the best growth rate for trucks since the end of 2011.
Overall, June had an industry seasonally adjusted annual rate of sales (SAAR) of approximately 14.1 million, according to market researcher Autodata Corp. This is up from 13.8 million during May.
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One of the bright spots for the industry as a whole is that pricing remains strong. The average transaction price for light vehicles in the United States was $30,508 in June 2012, up $849 or 2.9% from June 2011 and up $148 or 0.5% from May 2012, according to TrueCar.com. Incentives have been volatile lately; however, the average June incentive was $2,432 up a slight 1.5% from the same period last year.
Ford's share price has dropped below $10, stemming from the fears about the general economy, the weakness in Europe, and the warning from management that earnings will be weaker overseas than in the previous quarters. The company has strong cash flow, efficient operations in the United States, and continues to see strong pricing power in North America. Ford has an attractive lineup and new vehicles in the pipeline that will help support the current market share. Despite the announcement that management expects earnings to be pressured during the third quarter, Ford finished the second quarter strong. I think this recent weakness is a buying opportunity for Ford.
General Motors is in an interesting predicament. There are definitely fundamental problems, stemming from the troubles in Europe, but now with auto sales in China and India faltering, the growth prospect of GM is reduced. However, below $20.00, the company has a compelling valuation. I do not like GM for the long term (definitely prefer Ford); however, there is room for a short term pop in shares of GM, even above the 5% move GM's stock made following June's auto sales results.
The market right now is treating stocks in a similar manner; it's either a risk on or risk off trading day where the fundamentals have little to no importance in determining the value of a stock. That being said, the argument can change very quickly if a big change in the economy happens. Auto sales were able to buck the trend of negative economic data during the month, but I don't expect July to be another strong month.
Disclosure: I am long F.