What auto sales say about the economy

Carmakers' strong November gains paint a positive growth picture.

By TheStreet Staff Dec 2, 2010 11:23AM

Car © Image Source/CorbisBy Ted Reed, TheStreet


Once again, strong auto sales are signaling a continual gradual improvement in the economy and are enabling share-price gains for automakers.


In November, auto industry sales rose 17% over the same month a year earlier. "This year's fourth quarter will be the fourth quarter in a row that the sales rate has increased substantially," Ford (F) analyst George Pipas said on the company's monthly sales conference call. "It's a good sign as we approach 2011."


General Motors (GM) economist Sue Su said the time has finally come when companies, many of them sitting on cash, are ready to hire. "Businesses have been reluctant to hire workers," Su said. "Only recently, that deadlock seems to be broken. . . . Now we are seeing businesses a little bit more ready to hire."


"We are starting a positive loop" in which businesses have profits in hand and would like to invest more to meet growing demand, Su said, noting that rising employment will lead to improved consumer sentiment. That will inspire more auto purchases, especially given that the average vehicle today is about 10 years old and could use replacing.

While acknowledging that employment is definitely rising, Ford economist Ellen Hughes-Conwick said the weak housing sector remains a countervailing force. "Our perspective on the housing sector remains negative," she said. "Mortgage debt prevents (big increases) in consumer spending."


Overall, however, "despite the drag from housing, many buyers now have the means to replace older vehicles, (and) we do expect gradual increases in sales in the months ahead," Hughes-Conwick said. Increasing credit availability is also a positive, she said. This is especially true for GM, for which the benefit of the AmeriCredit deal is just now kicking in.


Sizing up individual automakers' prospects after Wednesday's sales numbers, investors maintained their love for the Ford story. Ford led the sector in sales gains, with a 24.3% increase, and in share price gain with a 3.3% increase. Honda (HMC) was second in both categories. Sales rose 21%, while shares rose 2.9 %.


Toyota (TM), despite a 3.3% sales dip, saw a 2.6% share-price gain. GM posted an 11.4% sales gain and a 1.7% share-price gain.


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Dec 2, 2010 8:08PM
What decade you these writers from?? I have never have anything but a GM or chrysler product in my driveway.   I am in my 50s and they never leave me wanting more.  Granted I only by V8s that seem to last forever.  The quality of GM and chrysler products is easily as good as their Japanese counterparts.  That is a fact not conjecture.   And German made? Are you kidding me?  BMW and Daimler have becom the Lucas of this century for their electrical problems the past 10 years. 
Dec 2, 2010 1:32PM
The  problem right now is this; GM Ford and Chrysler are selling cars based on "good deals" and how much they can make them look like vehicles from makers of high quality vehicles. The appearance and "good deals" being offered will not taste as sweet when the owners find that the quality isn't there. I will NEVER again buy a Ford, GM or Chrysler product.
Dec 2, 2010 3:11PM
I have not owned a US made automobile in almost 30 years. I figured out a long time ago they were junk and overpriced for what they are. Give me a German engineered vehicle every time!
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