Automakers’ Stocks Rise on Positive July US Auto Sales



Auto industry and economic data

The automobile manufacturing business is widely known for having high fixed and variable costs. Apart from the high fixed costs of plants and machinery, many other variable costs related to raw materials affect automakers profitabilities.

Similarly, economic data released weekly and monthly reflect possible upcoming trends in auto sales. Before we begin analyzing the data, let’s take a quick look at US auto industry sales figures for July 2016.

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July 2016 US auto sales

In July 2016, US vehicle sales remained strong at an SAAR (seasonally adjusted annual rate) of 17.8 million vehicles. This was far better than the SAAR of 16.7 million vehicles in June. The SAAR of US vehicle sales in July 2015, by comparison, was 17.5 million vehicles. Notably, the July 2016 figure has been the highest so far in 2016.

The US auto industry has witnessed good times in the past couple of years. In 2015, US auto sales were at their peak, with 17.4 million vehicles sold during the year. This certainly boosted automakers’ confidence. However, it also ignited a debate about US auto sales’ being at their peak and a possible downturn in US auto demand going forward.

Optimism so far in 3Q16

So far in 3Q16, most auto companies have outperformed the broader market (SPY). As of August 23, 2016, General Motors (GM) and Fiat Chrysler Automobiles (FCAU) have risen by 12.7% and 11.6%, respectively, in the quarter.

In the same period, Ford Motor (F) was still trading in negative territory, with a 1.2% erosion in value, compared to the 4.2% rise in the S&P 500 Index. Investor concerns about Ford’s ability to achieve its 2016 guidance may have been the primary reason behind the fall. During its 2Q16 earnings release, Ford highlighted the risks and challenges it could face in attempting to achieve its 2016 guidance.

Meanwhile, popular US electric car maker Tesla (TSLA) has attracted buying on Wall Street so far in 3Q16 and is trading at a rise of about 6%.

Series overview

Recently, we discussed the US auto industry’s July sales in detail in our series These US Auto Industry Indicators in July Speak Volumes. In this series, we’ll take a look at key economic indicators that auto industry investors can track to get a fair idea about a possible trend in auto sales.

We’ll also discuss the growth in the US pickup truck segment. Later, we’ll take a look at some cost-related factors that may affect automakers’ profitabilities.


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