December auto sales were reported by the major US auto manufacturers Thursday, and it appears the monthly SAAR (Seasonally Adjusted Annual Rate) was somewhere between 15.4 and 15.6 million units. Let’s dig into the results.
Best Idea Newsletter holding Ford has been on a tear since reporting a record operating margin in North America during its most recent quarter. Shares are up 35% during the past three months, and December’s results were another positive for the automaker. Company-wide unit sales grew 1.9% compared to the same period last year, driven by a 2.5% unit gain at the Ford brand, but hurt by a unit decline of 12% at Lincoln. For the year, unit sales in the US grew 4.7%.
December strength was mostly driven by improving small car sales, with the Focus and Fiesta both jumping over 50% compared to the prior year. The introduction of the fuel efficient C-Max also helped give the company a shot in the arm, as it sold over 4,300 units in December. Though F-series unit sales were up just 0.7% in December, total pickup sales grew over 10% for the year. Given GM’s strong pickup sales in December, we think Ford was the victim of discounting—though GM management says otherwise. Ford remains a core holding in our Best Ideas Newsletter portfolio, and we expect sales to improve in 2013.
GM reported a much better-than-anticipated month, with unit sales increasing 4.9% year-over-year compared to a consensus estimate of just 1.9%. Pickup truck sales were pretty strong with GMC Sierra unit sales jumping 13% and Silverado unit sales jumping 6%. Days sales outstanding, a metric used to determine whether or not a company has too much (or too little) inventory, for full-sized pickups fell from 139 days to 80 days. We think this could indicate higher incentive spending, and perhaps lighter margins than competitors.
Overall sales at Chevrolet were solid, up 3.7% compared to the same period last year on a delivery basis, though up only 0.9% on a retail level. However, the Volt is gaining some traction (up 72% based on deliveries). Buick and Cadillac unit sales were much better than Lincoln's, growing sales 10% and 12%, respectively. Both luxury brands are performing well as product execution and desirability remains strong.
Nevertheless, we’d expect GM’s profitability to trail that of both Ford and Toyota , as its vehicles continue to lack as much desirability (in our view), and its cost structure remains high. We think shares look fairly valued at current levels, but we wouldn’t be surprised to see shares continue to rise as GM benefits from the automotive refresh cycle.
We’ve mulled over the idea of adding Toyota to our Best Ideas Newsletter since at least November. Because we already owned Ford, however, we didn’t want to add yet another automaker to our portfolio. Still, Toyota’s shares have increased over 17% since then, but still haven’t performed as well as our top automotive pick: Ford.
Toyota’s December results continue to support a positive outlook. Unit sales jumped 9% year-over-year, which was slightly below consensus estimates, but still strong, in our view. The Prius family continues to perform incredibly well, with unit sales 22.4% higher than December 2011. Light trucks were also a standout in December, jumping 11.9% driven by solid gains form the Tundra (up 17.8%) and the Tacoma (up 20%). We like the Tacoma’s market position, especially with Colorado sales lagging and the Ranger no longer being sold in the US.
Lexus was also strong, with passenger car unit sales up 36.5% and SUV sales up 14.9% compared to the same period last year. Though the brand had fallen behind more popular competitors like BMW and Audi during the past few years, we remain optimistic about the newly-designed IS 250 that will be revealed in Detroit. Its vehicles also retain a reputation for quality and (relative) affordability, which could lead it to benefit from consumers cutting back in the wake of higher marginal tax rates (though we don’t expect the new tax rates to impact sales materially). We continue to like the company, and we think shares have upside, though they currently trade within our fair value range.
Honda’s unit sales growth of 26% in December was solid, in our view, but undoubtedly fell short of consensus growth expectations. Accord and Civic sales were up 66% and 61%, respectively, but total sales of the Honda brand grew 26.8% due to weak sales from the Fit, as well as disappointing sales from the Odyssey minivan.
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