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A Splendid Year for the US Auto Industry, With a Word of Caution

Neha Marwah

Neha Marwah

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The US auto industry sales were the best in 6 years, but there is a slight caution for the automakers. Although 2013 has been a splendid year for the US auto sector, carmakers have started seeing a slowdown in the demand. The pent-up demand for cars and trucks seems to have got relaxed a bit and 2014 is comparatively expected to be a moderate year.

December: In a snapshot

The industry has already seen a glimpse of decelerated sales in December. The cold weather conditions and solid Black Friday sales in November had an adverse impact on the overall December sales. The final month saw a marginal increase of 0.3% over last year. The annualized sales rate was 15.6 million, much below 16 million which was expected by the economists of Thomas Reuters. Top car players including General Motors (GM), Toyota (TM), and Volkswagen (VLKAY) not only missed expectations but experienced sales drop in December compared to last year.

This is primarily due to increased competition from fellow players Ford (F) and Honda (HMC) which increased their yearend incentives to attract more buyers. According to TrueCar.com, both Ford and Honda strategically increased their incentives on the hot selling pickups and mid-sized cars. Ford gave higher incentives of $600 per vehicle during December to contend with GM’s new pickups. Honda offered a bonus of $3,000 to its dealers in December for every extra car sold over last year’s sales volume. This clearly suggests that competition is going to intensify in the coming quarters. In fact General Motors already cited in a conference that it saw increased competition from rival players during December as they increased discounts and other promotional incentives to bolster their sales figure.

2013 at a glance

Automakers posted their full year sales on Friday and analysts were quiet hopeful that the industry would record an 8% increase to 15.6 million car sales for the year. Ford won the battle in terms of percentage gain by reporting 11% increase by selling 2.5 million cars. Fellow Detroit maker Chrysler and Japanese carmaker Nissan (NSANY) posted 9% sales gain each. Top US carmaker General Motor saw 7% sales rise by selling 2.8 million vehicles. Archrival Toyota and Honda also witnessed 7% sales rise. On the contrary, German giant Volkswagen suffered a 7% sales fall as it failed to lure customers to take home its aging models.

What to expect this year?

A senior analyst of Kelly Blue Book said, “Sales are approaching an equilibrium level of demand based on the needs of population and the number of licensed drivers in the country”. Most of the people who were looking to replace their aging cars have already bought it in the past years post recession. They are not likely to buyer in the near future as the longevity of cars have improved massively. The rest of the population doesn’t appear to be in much of a rush. So unless the economy experiences a strong upswing, 2014 would be a flatter year for the automakers.

Summing up

Auto sales finished at 15.6 million in 2013, which is up 7.6% over last year. Although December sales is one of the heaviest given the stock clearing incentives of the automakers, 2013 did not really see a solid finish. Nevertheless, the US economy has a soft spot for cars which is evident from the rate at which the auto sector recovered post recession in the last 4 years in comparison to other sectors. It might just be so that the automakers may have to work a bit more to get good business in 2014. The recovering economy, better employment rates, rebound in construction sector, and higher consumer confidence will drive growth and bring decent numbers in the coming years. 


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