Ahead of the Tape: U.S. Car-Sales Boom: Time to Downshift -- WSJ
June 01 2016 - 3:02AM
Dow Jones News
By Charley Grant
The auto-sales boom is growing old.
Investors are preparing themselves for that message when car
manufacturers on Wednesday report May new-vehicle sales in the U.S.
Analysts at Kelley Blue Book expect that U.S. car sales totaled
1.53 million in May, which would mark a 6% drop from a year
earlier.
Though the month has two fewer selling days than it did last
year, it would be the sharpest decline for a single month since
August 2010.
On the bright side, the projected seasonally adjusted annual
selling rate of 17.4 million is still quite strong. And there may
yet be some upside. After all, the critical Memorial Day selling
weekend fell at the end of the month. That makes full monthly sales
tough to predict, and a strong holiday could yet brighten the
picture.
Still, given that auto sales are a cyclical business, it is only
natural that some weakness would begin to set in. Kelley Blue Book
expects that 79.1% of sales were to retail customers, down from
80.5% a year ago.
Meanwhile, some macroeconomic factors that have helped nudge
sales seem to be fading. Gas prices, while still relatively low,
have recently crept upward. And while cheap credit remains readily
available to car buyers, the risk remains that easy lending
conditions have helped to pull future demand forward.
That is one reason auto-maker stocks command low valuations.
General Motors Co. and Ford Motor Co. trade at five and six times
estimated earnings for the coming 12 months, respectively,
according to FactSet. Value seekers might find that low ratio
appealing, but it won't mean much if sales and, in turn, profits
begin to deteriorate.
One silver lining is that bad news won't take the market
entirely by surprise. GM and Ford shares have each sold off by more
than 10% over the past year, even as auto sales rose to new
heights. The absence of investor euphoria should help soften the
blow from any bad news.
The flip side is that even an upbeat report is only likely to
postpone, rather than eliminate, investor anxiety. After all,
nothing lasts forever -- certainly not economic, or auto sales,
cycles.
(END) Dow Jones Newswires
June 01, 2016 02:47 ET (06:47 GMT)
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