January was a great month for the auto industry (except Toyota), right? Well, that's what the headlines would have you believe, with Ford and a few others posting double-digit increases on a year over year (YOY) basis. (Find out what to consider before taking a ride with stocks from this industry. For more information, read Analyzing Auto Stocks.)
IN PICTURES: Learn To Invest In 10 Steps
I won't deny that the superficial numbers offer some hope. But before we all start jumping on the "the consumer is alive and well" bandwagon though, I think digging a little deeper into the numbers may prompt investors to reel in their enthusiasm just a bit.
First Things First
I'm not going belabor the data you've seen pretty much everywhere else in the world. I just want to consolidate it into one package so we can work with it right now. January's North American YOY auto sales (that we know of so far) break down as follows:
- Ford (NYSE:F) sales were up 24%
- General Motors sales were up 14.0%
- Fiat (OTCBB:FIATY)-owned Chrysler sales were lower by 8.0%
- Kia Motors reported flat sales
- Toyota (NYSE:TM) sales were lower by 16.0%
- Hyundai sales were up 24.0%
- Subaru sales were up 28.0%
- Nissan sales were up 16.0%
- Honda (NYSE:HMC) sales were up 3.0%
- BMW sales were up 8.0%
- Porsche sales were up 8.0%
- Volkswagen sales were up 41.4%
- Mazda sales were up 2.0%
For me, this data suggests two points about the mid-price cars that Ford, Honda and General Motors make for the masses, and another about surprising increases in sales of the higher-end brands.
The Fine Print
So, is everything good for the 'average Joe' automaker despite Toyota's understandable sales decline? Not really, when a key detail is added.
I don't have all the data on fleet sales (to rental car companies and large organizations with big travel needs), but I have enough to make a strong generalization.
Though January's YOY numbers may look better, those 'average Joes' actually bought fewer Fords - it was fleet buying that was pumping up the numbers. Fleet sales to rental companies and other businesses accounted for about 1/3 of GM's and Ford's January total. Chrysler's fleet revenue in January amounted to approximately 40% of total sales.
In fact, Ford practically doubled its fleet sales between this January and the last one. Had it not been for fleet sales - which are generally less profitable - Ford's sales would have fallen 5% while GM's non-fleet sales increase was only 3%.
So what? The 'so what' is that fleets don't keep buying cars over and over again, yet the consumer really isn't buying that many more cars than he/she was a year ago - and last January was still a disaster for the economy. We're now 10 months into a new bull market, and we're celebrating big increases from last January's numbers - which were the worst numbers in 26 years. A little perspective please.
The Issue at Hand
The questions here center around longevity and relativity. How long can some - not even all, just some - of these carmakers really keep up the double-digit growth? And even if they do, to what are we really comparing these sales? The bar is set pretty low through the first half of 2010, as the first half of 2009 was very troubled.
The bigger point is simply that it's just too soon to get excited about automakers as a group. If individual consumer sales were actually down, and knowing fleet sales can't carry the industry's rebound forever, we're setting ourselves up for a little disappointment.
The Bar Is Too Low
Doesn't stronger interest in more expensive cars indicate a healthier consumer? Usually, but it's all relative. On a comparative basis (year over year) the numbers look great. On an absolute basis though, I still see challenges.
Yes, the calendar probably affects auto sales more than other industries. However, you still want to see some sort of hint of sequential growth, even if it's a 'two steps forward and one step back' sort of trend.
I used BMW (including the Mini) as an arbitrary case study to that end. I found marginal improvement at best. Even after March, monthly BMW sales in 2009 didn't stack up against 2008's numbers - and we're still miles away from matching 2006 and 2007 numbers on a YOY basis. In other words, it's hard to call January's 8.0% sales increase a trend. (The auto industry has been in trouble before. This American icon almost went under, but the US government refused to let it fail. Refer to Chrysler And The 1979 Bailout.)
Granted, BMW is just one company. I think it's a reasonable barometer for all the high-end car companies though, and it still points to something between "ho-hum" and "no-hum" growth.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Stock AnalysisA summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
EconomicsWill remaining calm and staying long present significant risks to your investment health?
Stock AnalysisIs DKS a bargain here?
Investing NewsA third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
Stock AnalysisHome Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
Stock AnalysisYelp investors have had reason to be happy recently. Will the good spirits last?
Stock AnalysisWalmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
Stock AnalysisAs a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>