What auto sales say about the economy
Carmakers' strong November gains paint a positive growth picture.
By Ted Reed, TheStreet
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.
I had my belly full of American cars a long time ago. Today I have a Mazda. I doubt the shiny new GM cars have much quality. That'd be a great leap of faith for me. A company that built clunky unreliable cars for decades after a year in bankruptcy all of a sudden sees the light and now builds premiere vehicles!
And Ford is full of it too. With their latest advertisements with some hick touting Ford's "quality" while smugly claiming Ford's quality is better than Toyota's is a sure sign that Toyota is the product to buy.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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