Autos: Pent-Up Demand or Recovery? - Analyst Blog

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Despite uncertainties in the market, consumers did not step back from the automobile showrooms in November as they felt the ardent need to change their old cars in the garage. Why wouldn't they be, when the average age of vehicles on U.S. roads is almost 11 years and used cars are worth more at trade-in!

The pent-up demand resulted in an impressive 10.6% rise in sales to seasonally adjusted annual rate (SAAR) of 13.6 million units in November from 12.28 million in the same month of 2010 while total deliveries went up 13.9% from the year-ago level. November was the third straight month when annualized vehicle sales have topped 13 million mark.

The SAAR of 13.6 million units is also the highest sales rate since August 2009 when the U.S. government launched the "Cash for Clunkers" trade-in incentive program. It is also a significant improvement from 12.6 million units for the first 10 months of the year.

The pent-up demand during the month was so strong that it even bypassed the effect of a rise in average vehicle price during the month. According to industry-tracking firm TrueCar.com, average vehicle price increased 4% to $30,000 in November.

Further, it was effective in boosting the demand for trucks, vans and sports utility vehicles (SUVs) as well as the luxury lineups like Mercedes and BMWs. The gas-guzzling trucks, vans and SUVs always remained the high-margin products for the automakers compared with the passenger cars before the economic recession that forced many automakers (especially the "Big Three") to change their product mix.

So, are we heading into the pre-recession era in the automotive industry? Before dealing with this question, let us delve into the sales numbers by individual automakers.

Sales by Automakers

Chrysler, Daimler ( DDAIF ), Ford Motor ( F ), Hyundai, Nissan Motor ( NSANY ) and Volkswagen ( VLKAY ) were among the automakers posting double-digit gain in sales in November. Among the Japanese automakers, Toyota Motor ( TM ) saw its first sales gain since April while Honda Motor's ( HMC ) sales were disappointing due to severe flooding in Thailand.

U.S. Automakers

General Motors Co. 's ( GM ) sales grew 6.9% to 180,402 vehicles, driven by strong demand for both cars and trucks. Sales of the Silverado pickup truck surged 33.7%, while that of Tahoe SUV soared 32.8%. Meanwhile, sales of Cruze compact car jumped 64.1%.

Ford's sales escalated 13.3% to 166,865 vehicles, driven by strong sales of trucks and SUVs that more than offset the drop in cars sales. Sales of SUVs zoomed 29.3% to 52,881 units, while that of trucks swelled 22.8% to 65,732 units. The company's top selling vehicle was F-Series pickup trucks, which recorded a 23.9% rise in sales.

Chrysler Group LLC - controlled by Italy's Fiat SpA ( FIATY ) - sales leapt 45% to 107,172 vehicles, driven by about ten-fold increase in sales of Jeep Compass small SUV. Sales of the company's Jeep brand jumped 50%, while that of Chrysler brand nearly doubled on strong demand for its 200 and 300 sedan models.

Japanese Automakers

Toyota recorded a 6.7% rise in sales to 137,960 cars and trucks. The automaker's car sales were better than truck sales, with the Prius hybrid sedan posting a 43% improvement in sales.

Honda's sales dipped 6.4% to 83,925 vehicles due to production disruptions in Thailand. However, its Civic sedan and Pilot crossover sport utility vehicle did well during the month with 3.4% and 38.1% rise in sales, respectively.

Nissan, the least hurt automaker by the twin disaster in Japan, saw a 19.4% rise in sales to 85,182 vehicles during the month under study. Nissan Division sales grew 21.5% while Infiniti vehicles sales inched up 3%. The company's best selling models during the month included Versa sedan, Rogue crossover, Frontier pickup and Pathfinder truck.

Other Automakers

Daimler posted an impressive 55.2% rise in sales to 28,255 vehicles led by strong sales of C-Class and E-Class lineups. The company's all-new 2012 sporty C-Class - aimed at luring the younger and first-time Mercedes-Benz buyers - performed extremely well with a 112.7% rise in sales to 8,358 units.

Hyundai Motor ( HYMLF ) sales went up 22% to 49,610 vehicles, driven by strong sales of Elantra and Sonata. The Korean automaker succeeded in grabbing the market share from top Japanese automakers, who suffered from production disruptions on the back of twin disaster in Japan.

Volkswagen posted a 41% rise in sales to 28,412 units on strong sales of Passat and Jetta. Passat sales totaled 6,018 units compared with 374 units in November 2010, while Jetta sales totaled 12,891 units, a 15.6% increase over last year.

Conclusion

The sales trend during the month clearly indicates a shift in consumer paradigm in the automotive industry given the recessionary conditions in the U.S., including higher unemployment rate (9%) and surging food and clothing costs, as well as the eurozone crisis.

Although the recovery in auto sales can be deduced with the help of pent-up demand theory and incentives, we cannot overlook the turnaround in consumer confidence.

The urge to fulfill the pent-up demand by the consumers clearly indicates a well-thought move taking any recessionary effects into account rather than a hastened decision to grab the dealer incentives. In this regard, we can recall Robert E. Lucas Jr's Rational Expectations Model , which states that agents' expectations are assumed not to be systematically biased and use all relevant information in forming expectations of economic variables.

It is possible that sales could soften once the buyers' pent-up demands are exhausted. Nevertheless, we think it would reach close to the pre-recession level rather than moving downward.


 
DAIMLER AG ( DDAIF ): Free Stock Analysis Report
 
FORD MOTOR CO ( F ): Free Stock Analysis Report
 
FIAT SPA ( FIATY ): Free Stock Analysis Report
 
GENERAL MOTORS ( GM ): Free Stock Analysis Report
 
HONDA MOTOR ( HMC ): Free Stock Analysis Report
 
NISSAN ADR (NSANY): Free Stock Analysis Report
 
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DDAIF , F , FIATY , GM , HMC

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