Japanese automakers (OTCPK:NSANY, TM, HMC, OTCPK:MZDAY, OTCPK:SZKMY, OTCPK:FUJHY, OTCPK:MMTOF) are reconsidering strategy in the U.S. after taking in the strong preference by American buyers for SUVs and trucks. The shift in sales mix has contributed to the rising incentive spending needed to clear inventory.
Top execs at Toyota say the company will have to be "very careful" with the North American market going forward.
"It’s a peak and we don’t see a potential for further growth," said Nissan co-CEO Hiruto Saikawa.
Toyota reported earlier today a sharp drop in FQ2 operating profit. Last weekend, news broke that the company may make a serious pure EV commitment.
The shifting ground in the automobile industry has long-term implications for suppliers as well.
U.S. auto sales are expected to show a decline of 2% to 5% for August amid a dialing back of discounting activity, according to the range of forecasts from Kelley Blue Book, Edmunds, J.D. Power, and LMC Automotive. General Motors is poised to report a loss of market share as its plan to cut out fleet sales impacts volume.
Bloomberg estimates the seasonally adjusted selling rate for the month will be 17.2M, down from 17.9M last month.
The sales dip isn't necessarily a bottom line drag for the sector due to reduced discounting and the increasing mix of higher-profit SUVs and trucks. But higher profit hasn't lifted automaker stocks this year, with the group having trouble gaining traction and trading with low forward PE multiples (GM 5.5, Ford 6.8, Honda 10.5, Toyota 10.9).
Auto suppliers Federal-Mogul Holdings (FDML +11.1%), Motorcar Parts of America (MPAA +6.2%), Gentherm (THRM +5%), Meritor (MTOR +4.3%), and Stonebridge (SRI +2.8%) are all showing outsized gains on the day, despite global stock market declines. The sector has been off to a volatile start this year.
Tire stocks Goodyear Tire & Rubber (GT +2.2%) and Cooper Tire & Rubber (CTB +0.7%) are also in solid shape today.
Though some forecasts call for automobile sales growth to slow in China and the U.S. this year, strong demand from Europe is making up for some of the slack.
Major automakers are stealing the show this week at CES in Las Vegas off of some dreamy futuristic innovations, but are slumping in New York trading on some grounded reality. Detroit automakers Fiat Chrysler (FCAU -6%), Ford (F -3.4%), and General Motors (GM -2.8%) are all notably lower.
U.S. auto sales increased 9% Y/Y in December, but were boosted by some extra discounting. Still, the higher mix of SUVs and premium trucks could help to make up for the year-end inventory clearing, note some insiders. Even accounting for discounting, pricing trends improved in December compared to a year ago, reports Kelley Blue Book.
Looking ahead, the strong appeal of crossovers with millennials is seen as underpinning demand into 2016.
There's been skittish trading across automobile related sectors. Earlier today, AutoNation rattled the auto retailer group with a warning, while auto parts stocks are down sharply once again - led by Federal-Mogul (FDML -5.8%), Stoneridge (SRI -5%), and Lear (LEA -4%).
Many auto parts stocks are trailing off after key manufacturers (Ford, GM, Toyota, Fit Chrysler) miss forecasts with their December U.S. sales reports. The sector bounced last month when the rosy predictions first started piling in.
Weakness in China this week may be impacting sentiment on certain auto parts names as well.
Auto parts stocks are solid outperformers on the day. The rally could be a reaction to estimates from TrueCar and Kelley Blue Book that showed U.S. auto sales popped in December. Both research firms predict a 13% Y/Y increase in sales for the month.
Notable advancers include Meritor (MTOR +4.5%), Dana Holding (DAN +3.9%), BorgWarner (BWA +3.2%), Stoneridge (SRI +2.7%), Tenneco (TEN +2.3%), Federal-Mogul (FDML +2.8%), Delphi Automotive (DLPH +1.9%), Allison Transmission (ALSN +2.1%), and Johnson Controls (JCI +2.1%).