Why Are U.S. Auto Sales Soaring?

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Sept. 5 (Bloomberg) -- Autopacific's Ed Kim, Stutland Volatility Group's Joe Tigay and Bloomberg's Matt Miller discuss rising U.S. Auto sales with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

American auto profits are soaring.

Take a look at these numbers -- gm, ford and chrysler earning a combined $13.5 billion.

Improving auto sales in august -- we are talking about 1.5 liter cars off the lot, pushing the annual rate to a prerecession boom time.

So how do you take this one to the banks?

Matt, how extra area are these numbers?

Asked the interesting thing i have found in reporting this dory is it seems as though american automakers, and i'm talking about all of them and also japanese automakers, have reached a different point in their production cycle where they just can't take enough of these cars to match demand.

To be that gm, ford and chrysler would build so many cars that they were left over with a ton of them and had to discount them heavily and get them off to rental fleet just to get rid of the production.

Now they are selling out, so a lot of cars you can't find.

Not only american carmakers, but nissan, toyota are only staying on lots, they are selling one every 60 seconds grade so it's an amazing play.

How long can it continue?

At some point people get their car and move on.

There is a lot of and the grand fraud mobiles right now because there is a statistic that shows the median age of a vehicle on the road is 11 years.

There are a lot of people differing their purchases and now people are back to work and the unemployment situation is getting under.

More people are back at work and need cars to commute.

We see death of demand but we see continued recovery in the industry.

We expect the industry to get up to the 16 million unit range within the next couple of years.

Where does that leave you in terms of how to play this?

Are you going after the traditional car manufacturers or suppliers?

I actually think hard of what makes the back out of these auto dealers are the suppliers.

It's very exciting to see the performance of the automakers, but it is the suppliers inviting all the parts.

Maybe we haven't seen as much upside in the stocks yet question mark but not yet.

Let's take magnet international.

This is a supplier that is very diversified.

They provide everything from carriers, drive systems, electronics, all sorts of things for these cars but their stock price is still pretty inexpensive.

But as automakers raised their forecasts, they are going to be buying a lot more parts.

This does well for suppliers in general.

I wonder about how much automakers have to make themselves and how much they can farm out labor?

What we talked about apple, we talked about plan was manufacturing.

They do all the administrative work but have someone else make it.

Looks like the carmakers are farming out of order parts of the process , to make drivetrains for example, ford is using ego boost technology where they have more you'll efficient engines with a v-6 and slap a turbocharger on rather than the old v-8 that may not have been as fuel-efficient area are we seeing more of that?

Lex definitely.

-- definitely.

One of the most exciting areas to look at are the suppliers that are dealing in emerging technology like turbocharging.

Turbos are big business right now and they will be bigger business as corporate average fuel economy standards keep on rising great automakers need ethnology to make their vehicles achieve this better fuel economy.

It's just going to keep on going in the future.

So we will be watching all of them.

Some good points about the danger of some of these.

What are you looking at -- how are you playing the auto sector?

I think the place you want to be is in the parts manufacturing space.

One company has outstanding value out there.

The big three cut reduction by 3 million units a month during the rate recession.

The larger to mid-cap companies will be in great positions to take care of that increased production.

Lear corporation is a $5.7 billion company that will have great price power over the smaller reduction in competition.

It is a fantastic value, trading at 85 14 price-to-earnings ratio compared to an industry average of 16.3. we do get rid of the risk by buying the october call spread and sally october 75 or $.80. i will break even at 72.20, $.90 away from where it is now and i can turn that into five dollars of it trades over expiration.

And interesting options trade there.

There is a broader economic story here to tell through these auto sales.

More people are going back to work and they need a car to commute to the average car on the road is 11 years old, so they go and buy one.

By the way, they are paying a higher price for these cars.

We were talking about the average transaction price, over $31,000. these carmakers are getting actual profit from that whereas they would easily sell at a loss.

It's all good for the american economy in the long run.

They are hiring or workers to do it and ford is hiring or workers in the u.s.. thank you so much.

Coming up, samsung possible effect.

This text has been automatically generated. It may not be 100% accurate.


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