US Auto Sales Continue to Impress

The auto industry is always a good indicator of how the economy is performing. Household consumption is up and with that, so are auto sales. In January, GM, Ford, Chrysler and Toyota all saw double digit percentage increases. In a time where credit is not too difficult to obtain and interest rates remain low, consumers are taking advantage by buying new vehicles. According to expert reports, US auto sales are expected to be up 15% from a year ago. GM sales chief Kurt McNeil said, “Consumers feel good because more people are working, the U.S. economy is expanding and fuel prices are low.” http://www.wsj.com/articles/chrysler-sales-jump-in-january-1422968401?mod=WSJ_hp_LEFTWhatsNewsCollection. Low fuel prices are key as this represents a major expense post purchasing a car. While numbers can be skewed by weather patterns and other one time occurrences, it appears as if the fundamentals of the industry remain strong. After 2008, many car companies dove into a dark place. Major internal changes and restructurings appear to have worked and are starting to pay dividends. According to WardsAuto.com, factory utilization is at an all time high. Many companies were forced to close production plants in 2008 due to massive losses. This has ended up working out well and has led to more efficient uses of production space. I am concerned with this recent trend of new car sales for a couple reasons. Where have we heard easy credit before? This trend of lending to potentially subprime borrowers is exactly what got banks into trouble in 2008. If lending remains easy and interest rates remain low, who knows if we will see a 2008 repeat itself. The economy is cyclical by nature but fluctuations do not need to be as extreme as they were in 2008. Many experts in the industry do not believe that we have anything to fear. According to a recent article that examined the recent industry sales spike, “The latest sales spurt, coming after the “stellar” figures for December 2014, has scotched fears that growth in the US auto market might be abating after years of strong recovery from the market’s near-collapse in early 2009.” http://www.ft.com/cms/s/0/aa4c8326-abb4-11e4-b05a-00144feab7de.html#axzz3QilwUwoy. The fact that all fears are gone is a little concerning. Once oil prices being to increase and the Fed beings to raise rates, what will these car companies do to remain profitable. Consumer spending remains strong which is a good indication that sales could remain strong. However, these companies need to figure out ways to remain profitable and never relax just because they has a few good months. Leaders of these companies need to remember where they were a few years ago.

 

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