Best Sales Since 2007 Overshadowed by GM’s Unsold Pickups

Most Sales Since ’07 Shadowed by GM Unsold Truck Inventory
GM faces the prospect of disappointing U.S. truck sales as the automaker addresses other issues, including continued losses in Europe and the sudden resignation of Joel Ewanick, the company’s global marketing chief. Photographer: Daniel Acker/Bloomberg

The best year for U.S. auto sales since 2007 hasn’t been enough to boost General Motors Co.’s shares. One reason is dealership lots such as Dave Gill Chevrolet in Columbus, Ohio, that are overstocked with trucks.

GM said it entered July with more than five months’ supply of full-size pickups, the most since April 2009, according to researcher Ward’s Auto. This isn’t entirely accidental: Detroit-based GM wants a stockpile to carry it through the change to a new design next year. That plan may backfire if the segment’s sales remain below those assumed at the start of the year.

“I don’t know what our store’s days’ supply is; it’s probably embarrassingly high,” Matt Ringlien, a sales manager at the Chevy store in Columbus, said in a telephone interview. The dealership is frequently selling pickups for less than it paid to GM “just to be competitive with our market,” he said.

Chris Ceraso, analyst at Credit Suisse Group AG, said this month that GM, already offering heavy truck discounts, may have insufficient demand that leads it to cut production as pickup sales lag the rest of the market. In the U.S. auto market, on pace to exceed 14 million sales for the first time in five years, slow-selling pickups are a rare weak spot.

A lot is at stake with full-size pickups. GM and Ford Motor Co., which makes more money on F-Series pickups than any other model, could use a stronger rebound in truck sales to divert investors’ eyes from European units that are piling up losses.

Slumping Stocks

GM gained 1.8 percent to $19.71 at the close in New York. Ford gained 1.5 percent to $9.24. GM’s $18.80 close on July 25 was the lowest since its November 2010 initial public offering. Ford has declined 14 percent this year.

U.S. light-vehicle sales probably rose 11 percent in July to 1.17 million, the average estimate of 11 analysts surveyed by Bloomberg. Industrywide deliveries climbed 15 percent in 2012’s first six months to 7.27 million, according to Autodata Corp.

Investors should focus on the percentage change in vehicle sales this month rather than the seasonally adjusted annualized rate, or SAAR, Rod Lache, a Deutsche Bank analyst, wrote in a July 24 report. Analysts said their estimates for the closely watched rate were skewed this month because they were made without updated seasonal factors from the U.S. Bureau of Economic Analysis.

Estimates’ Range

Without the government-issued seasonal adjustments, analysts used differing methods to calculate their sales rate estimate. Barclays Plc analysts used seasonal factors from July 2011 and discounted them by 4 percent to reflect fewer selling days. Credit Suisse’s Ceraso used seasonal factors from July 2007, the last July until this month with 24 selling days.

The SAAR may match the second-quarter selling pace of 14.1 million, according to 16 analysts’ average estimate. Analysts’ estimates for SAAR ranged from 13.8 million to 14.3 million. The median estimate of 40 economists surveyed by Bloomberg was 14 million in a separate survey.

The sales rate slowed in the second quarter from 14.6 million in the year’s first three months, said David Lucas, vice president of Autodata in Woodcliff Lake, New Jersey. The July 2011 pace was 12.2 million.

Full-size pickups probably accounted for less than 11 percent of industry deliveries in July, according Credit Suisse’s Ceraso and Deutsche Bank’s Lache, who wrote that he was “a bit disappointed that truck mix has not accelerated faster.” Big pickups accounted for 13.5 percent of the U.S. market from 2000 to 2007 on average, according to Autodata.

GM’s Month

GM’s July deliveries probably rose 2.1 percent, the average of 11 analysts’ estimates. The automaker introduced an offer on July 10 for no-haggle pricing on 2012 Chevrolet cars and trucks plus a money-back guarantee on all new Chevys to clear out end-of-model-year vehicles. That may help clear 2012 model year Silverados, Ceraso said July 12.

“If GM’s market share does not improve meaningfully, we could see the automaker cut 3Q12 pickup truck production by more” than researcher IHS Automotive’s estimate of an 18 percent reduction from the second quarter, he wrote.

GM faces the prospect of disappointing U.S. truck sales as the automaker addresses other issues, including continued losses in Europe and the sudden resignation of Joel Ewanick, the company’s global marketing chief, who had halted advertising on Facebook Inc. and next year’s Super Bowl while signing up with English Soccer teams Manchester United and Liverpool.

Housing Hopes

A rebound in the housing industry is reason to be optimistic that full-size pickups will improve in the second half, according to AutoNation Inc., the largest U.S. new-vehicle retailer. Pent-up demand that helped fuel the U.S. auto market’s growth since industry sales fell to a 27-year low in 2009 is starting to show in the housing market, Mike Jackson, chief executive officer of AutoNation, said in a July 19 interview.

Housing starts rose 6.9 percent to a 760,000 annual pace in June, the highest level in almost four years, the Commerce Department said July 18 in Washington. Confidence among U.S. homebuilders increased in July by the most since September 2002, the National Association of Home Builders/Wells Fargo index showed on July 17.

“GM wants to be safe and provide dealers with inventory they need given the same economy and marketplace or an improving one,” Tom Libby, an analyst for R.L. Polk & Co. in Southfield, Michigan, said in a telephone interview.

Enough Trucks

The automaker also has been building extra inventory to account for suspending production at its four full-size truck plants for a combined 29 weeks to prepare them to make a redesigned pickup that begins sales next year.

“We certainly have enough trucks to make it until the new ones arrive,” said Ringlien, the Ohio dealer. “Early in the year, people were concerned there was going to be a shortage. But I don’t see that to be the case.”

The new trucks will be aimed at Ford’s F-Series, the top-selling vehicle line in the U.S. for 30 years. Ford probably increased sales by 0.8 percent in July, the average estimate of 11 analysts.

Ford is counting on F-Series and new models this year such as the Escape sport-utility vehicle and Fusion sedan to boost results after lowering its outlook for full-year profit on July 25. The Dearborn, Michigan-based company no longer forecasts total pretax operating profit to equal last year’s $8.8 billion because losses in Europe will widen to more than $1 billion.

Japanese Rebound

Japan-based automakers Toyota Motor Corp. and Honda Motor Co., which lost production after the March 2011 earthquake and tsunami in their home country, probably led the industry with the biggest year-over-year sales increases in July.

Honda may top the rest of the industry with a 41 percent gain in July sales, followed by Toyota’s 25 percent increase, the average estimates of eight analysts.

Vehicle shortages for Toyota and Honda sapped inventories for other automakers last year and deterred some buyers who waited for better selection of models.

U.S. auto sales are on pace for the best annual total since 2007. With the Europe’s auto market declining a fifth-straight year and dragging on earnings for GM, Ford and Chrysler Group LLC’s majority owner Fiat SpA, the automakers are counting on steady demand in the world’s second-largest market to offset losses in other regions.

Chrysler probably will lead the U.S. automakers with a 14 percent sales increase in July, the average of 10 estimates. The Auburn Hills, Michigan-based carmaker is running a national promotion this month for all vehicles in its lineup that lets buyers defer monthly payments for the first 90 days after purchase.

No Slowdown

“We don’t see a slowdown in the second half of the year” for the U.S. market, Richard Palmer, Chrysler’s chief financial officer, said today on a conference call after the company reported second-quarter profit of $436 million.

The automaker controlled by Turin, Italy-based Fiat led major automakers in incentive spending during the first six months, increasing promotions by 7.4 percent to $3,258 per vehicle, according to Autodata.

Chrysler, Ford and GM benefited last year when the Japan tsunami and floods in Thailand disrupted auto production and sapped supply of Tokyo-based Honda’s best-selling models. Toyota rebounded in the U.S. and globally, putting the automaker on pace to outsell GM and Volkswagen AG and reclaim its title as the world’s top seller.

Toyota’s global sales rose 34 percent in the first six months of the year to 4.97 million, leading GM by 300,000 and Volkswagen by 520,000 deliveries. GM global deliveries rose 2.9 percent to 4.67 million during the first half while Volkswagen sales increased 8.9 percent to 4.45 million.

VW, Nissan

Volkswagen, which set a target of more than 500,000 vehicle sales in the U.S. this year, may have increased combined deliveries of its Volkswagen and Audi brands by 23 percent in July, the average of four analysts’ estimates. The two brands boosted sales by 28 percent to 340,372 in the first half.

Nissan Motor Co., beginning to sell its redesigned Altima sedan, may report a 15 percent gain in deliveries for the month, the average of eight estimates.

South Korea’s Hyundai Motor Co. and Kia Motors Corp. may combine to sell 0.9 percent more vehicles in July than a year earlier, the average of six analysts’ estimates. The Seoul-based automakers combined to increase deliveries by 14 percent this year through June, according to Autodata.

The following table shows estimates for car and light-truck sales in the U.S. Estimates for companies are a percentage change from July 2011. Forecasts for the seasonally adjusted annualized rate, or SAAR, are in millions of light vehicles.

July had 24 selling days, two fewer than the year-earlier period.

GM Ford Chrysler SAAR

Rod Lache -0.9% -0.2% 14% 14.0 (Deutsche Bank) Peter Nesvold 8.9% 5.3% 18% 14.1 (Jefferies) Patrick Archambault 4.9% 6.1% NA 14.0 (Goldman Sachs) Joseph Spak 1.5% 0.3% 14% 14.0 (RBC) Brian Johnson -0.8% 1.8% 16% 14.2 (Barclays) Emmanuel Rosner -0.4% 1.1% 11% 14.3 (CLSA) Chris Ceraso 0.5% 1.2% 13% 13.8 (Credit Suisse) Ryan Brinkman NA NA NA 13.9 (JPMorgan) John Sousanis 8.2% -3.0% 8.4% 14.1 (Ward’s) George Magliano NA NA NA 14.1 (IHS Automotive) Jeff Schuster NA NA NA 14.1 (LMC Automotive) Alan Baum NA NA NA 14.1 (Baum & Associates) Jessica Caldwell -0.3% -2.5% 9.2% 14.0 ( Jesse Toprak 0.3% -1.1% 18% 14.1 ( Alec Gutierrez 1.5% -0.3% 16% 14.0 (Kelley Blue Book) Average 2.1% 0.8% 14% 14.1 The following table shows selling-day adjusted estimates for company car and light-truck sales as a percentage change from July 2011.

GM Ford Chrysler

Rod Lache 7.2% 9.2% 25% (Deutsche Bank) Peter Nesvold 18% 14% 28% (Jefferies) Patrick Archambault 14% 15% NA (Goldman Sachs) Joseph Spak 10% 8% 24% (RBC) Brian Johnson 7.4% 10% 25% (Barclays) Emmanuel Rosner 8.0% 9.5% 20% (CLSA) Chris Ceraso 11% 9% 26% (Credit Suisse)

Average 11% 11% 25%


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