The auto industry saw fantastic sales figure for the month of March, with several automakers hitting record-breaking numbers, while others enjoyed solid gains. March turned out to be the best month for auto sales in the last five years, with an average annualized rate of 15.6 million units.
Domestic players General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Chrysler posted record monthly sales since the auto market’s plunge in December 2007. Let’s take a look at the numbers in detail and figure out the reasons for such sharp gains, despite apprehension over the impact of Washington D.C. gridlock.
The ‘wow’ month
Honda Motor Co Ltd (ADR) (NYSE:HMC) experienced the highest sales growth that translated into a gain of 7.1%, which was mostly led by its revamped Accord. This new sedan saw a 36.4% rise in its deliveries for the month.
General Motors Company (NYSE:GM) came close behind with a 6.4% sales increase and sold 245,950 units. The growth was driven by an 11.6% rise in GMC sales, backed by retail and fleet sales, which grew 4% and 12%, respectively.
Kurt McNeil, the sales VP of GM’s US operations, gives credit to the recovering US economy and noted that sales of both light vehicles and trucks were seeing phenomenal growth.
The improving housing and construction sector is good news for GM’s local foe Ford, as well. Ford Motor Company (NYSE:F), like Detroit-mate General Motors Company (NYSE:GM), generated a sales gain of 6% for the month by selling 236,160 vehicles. The automaker could have done even better had it not faced issues with its Lincoln division.
The “Blue Oval’s” redesigned Fusion and Escape are selling in record numbers, which made both of the models post their best-ever monthly and quarterly sales. The company’s Explorer SUV sales jumped 33% from a year ago, while its F-series truck sales climbed 16%. Overall, the car maker experienced a solid month.
Chrysler is also enjoying the recovery of the pickup market as it witnessed huge demand for its Ram 1500 truck. Overall, the Detroit automaker experienced a 5% sales gain. Though its Ram Truck division experienced a 24% rise in sales, its Jeep sales were down 15%, which brought down the total growth for the month.
Top auto seller Toyota Motor Corporation (ADR) (NYSE:TM) continued its momentum with modest growth of 1% to 205,342 vehicles over prior year. The auto giant had experienced an abnormally strong March last year when it started recovering from the supply shortage after being hit by the 2011 Japan earthquake. Therefore, the car maker’s executives appear happy even with a marginal rise of 1% over last year’s fantastic figure. For Toyota’s Carter, ‘wow’ is the one-word description for the month.
German auto giant Volkswagen, which posted a 3.1% increase in car sales for the month, reported its best March in 40 years. Japanese automaker Nissan saw a marginal gain of only 1% to 137,726 units during the month, but that too was good enough for the automaker to record its top month ever in the US economy. This growth was led by its new Altima, backed by the sales of its electric model Nissan Leaf.
The auto industry is experiencing great momentum as it continues to draw buyers in huge numbers. So what is it that’s luring buyers to the showrooms?
What’s working in favor?
The improving job market and declining unemployment levels are boosting consumer confidence. People are willing to replace their aging vehicles with super exciting models as the quality and variety of cars have risen drastically.
Fusion, Accord, Camry, Escape, and Cadillac ATS are constantly luring buyers who have unleashed their strong pent-up demand. In addition, the tax refund checks, which on average amount to $3,000 this year, can also induce many to make a down payment for a car.
Moreover, the recovery of the housing and construction sectors has revitalized truck demand. Construction companies are replacing their old trucks with new ones as they are getting more and more business.
Another essential factor that is driving auto sales is the availability of easy credit, and it’s available at lower finance costs. Though sales incentives have fallen and several models have become dearer in the past few months, auto sales have not been hit as cheap credit is offsetting the lack of sales incentives offered by automakers. While several factors are working in favor of the automakers, what is it that they are doing to take care of their top and bottom lines?
Looking ahead
The auto sector is extremely concentrated and requires the industry giants to create well-designed cars to stay competitive. General Motors Company (NYSE:GM) has planned to put in $5 billion in its Opel brand to develop 23 fresh models. Overall, the company expects the operating profit to grow modestly as demand stemming from the U.S. and China remains strong.
Ford Motor Company (NYSE:F) is focusing on small cars, which is benefiting the company as its Ford Focus is selling in massive numbers. Though Europe is troubling the second-largest US automaker, its North American business, which is also dubbed the automaker’s ‘engine’ by chief executive Alan Mulally, is expected to post solid profits. The car maker has an eye on the emerging markets, particularly in China, where it has been witnessing encouraging sales numbers lately.
Toyota Motor Corporation (ADR) (NYSE:TM), on the other hand, is concentrating on lowering its global production costs and is simultaneously working on designing trendier models. The company recently shuffled its management and introduced three non-Japanese executives as heads of its global businesses.
To manage costs, the company plans to adopt the latest technology. In fact the car maker has already derived an adjustable assembly line which could be changed per demand. The company has plans to boost sales in the emerging markets; however, it has no intentions of building a new plant in the next three years. Instead it plans to utilize present capacity more efficiently to keep fixed costs under control.
The outlook
According to Finbar O’Neill of J.D. Power and Associates, the automobile market is going to grow healthier and stronger with the passage of time. The industry is expected to witness sales of over 15.3 million vehicles from 14.4 million last year.
GM’s Chief Executive Dan Akerson also expects strong demand in the next four-to- five years. The US auto industry outlook looks brigh,t as Americans have let loose their demand for cars to replace the old ones.
Though the overall sales gain has been softer compared to recent months, which delivered double-digit growth, easier credit, low interest rates and flashy car specifications continue to keep consumer spirits high.
Rajesh M. has no position in any stocks mentioned. The Motley Fool recommends Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). The Motley Fool owns shares of Ford.
