…Last month Americans bought 1.5 million vehicles, a 3.6% bump from a year ago, establishing a new record for April and eclipsing the old mark set 11 years ago…for a seasonally adjusted annualized pace of 17.4 million vehicles. That puts automakers on track for a second consecutive annual sales record…and resultant strong profits could cause investors to pile into the stocks of major auto makers.
The triple…[benefit] of low fuel prices, favorable credit conditions and a strengthening economy continue to bring buyers into dealerships. Fleet sales to rental-car companies, government buyers or corporate accounts drove much of the gains in the first quarter, according to the Wall Street Journal. Meanwhile, retail sales to individual buyers have held steady.
With gas prices hovering just north of $2 a gallon on average across the country, customers continued to choose larger — and pricier — trucks and sport-utility vehicles, with sales of those models climbing 11% in April. Meanwhile, passenger-car sales fell 5%.
With companies now operating at a lower factory capacity in the wake of the Great Recession, automakers can demand higher prices to meet stronger demand. The industry reported a $1,500 jump in average transaction prices last month, nearly double the average.
The rebound comes at a key time for the world’s automakers who count on the U.S. as the most profitable market in the world. Margins are slim to nonexistent in Europe and earnings in China, while relatively strong, are split with joint venture partners.
For Detroit automakers, the chance for record 2016 profits remains very much alive. The Big Three — General Motors, Ford, and Chrysler — earned $6.8 billion in combined operating profit from North America in the first quarter, or 86% of total global operating profit for the group during the period.
- Ford earned an outsized share of the benefit. For the second month in a row, the company delivered more than 70,000 F-series pickups—its most profitable model— and sold the most SUVs in its history but its car sales fell 12%
- Toyota also sold more trucks and SUVs than ever.
- Fiat Chrysler car sales fell 8% April.
- Hyundai’s two top-selling cars, the compact Elantra and midsize Sonata, each saw big sales declines.
- Sales of General Motors’ all-new Chevrolet Malibu and Honda’s new Civic each rose nearly 25%.
With buyers showing their heavy preference for…SUVs and trucks, however, manufacturers may be forced to discount cars to keep their inventory moving. Many auto factories can easily switch from cars to SUVs as many SUVs are built on the same underpinnings as cars…Indeed, Ford and Fiat Chrysler both reported strong North American margin growth during the first quarter when both companies laid out their plans to shift more investment into U.S. truck and SUV production.
There may be upside here as strong profits could push investors to pile into the stocks of major auto makers.
Disclosure: The original article, from MotifInvesting.com, was edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a fast and easy read.
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