Ford Bullish on U.S. Means Highest Auto Sales Since 2001Keith Naughton and Madeline O’Leary
U.S. passenger vehicle sales will probably rise for an unprecedented sixth straight year in 2015 and may exceed 17 million for the first time since 2001, Ford Motor Co. said, indicating that the auto industry will keep growing next year.
Deliveries of new cars and trucks will rise to 16.8 million to 17.5 million, including about 200,000 medium- and heavy-duty trucks, Ford said in investor presentations yesterday. U.S. light-vehicle sales haven’t exceeded 17 million since 2001, when automakers, led by the former General Motors Corp., lured consumers to dealerships with no-interest loans that sapped profits even as factories kept humming.
The outlook underscores the renaissance of the U.S. auto industry stemming from the 2009 bailouts of GM and Chrysler by the Bush and Obama administrations. Ford expects U.S. sales growth, aided by new aluminum pickup trucks, will make up for profit-corroding currency swings in Latin America and Russia.
“We think the housing market will continue to improve, which does influence the truck market and we’re looking forward to that,” Joe Hinrichs, Ford’s president of the Americas, told investors in Dearborn yesterday, adding that Ford expects U.S. auto sales may rise to a record 18 million by the end of the decade. “In the second half of the year, with all of the launches, that gives us good strength going into 2015.”
Ford said yesterday its pretax profit this year will come in around $6 billion, as much as $2 billion short of its previous forecast, due to heavy spending on recalls and losses in South America and Europe. Next year, Ford said earnings will rise to $8.5 billion to $9.5 billion as it rolls out a new aluminum-bodied F-150 pickup, its top-selling and most profitable model. Ford fell 2.3 percent to $14.76 at 3:25 p.m.
For now, sales continue to gain momentum, aided by job growth, rising consumer confidence and available credit.
September sales results announced tomorrow may show a 9.9 percent rise to 1.25 million light vehicles, the average of 10 estimates by analysts surveyed by Bloomberg. The selling rate, adjusted for seasonal trends, may rise to 16.5 million from 15.4 million a year earlier. August’s selling rate surged to 17.5 million, the highest since January 2006.
GM, the nation’s largest automaker, is projected to lead the way with an 18 percent increase, followed closely by Nissan Motor Co. at 17 percent, Chrysler Group at 16 percent, at Honda Motor Co. at 15 percent, the averages of analyst estimates. Toyota’s deliveries may increase 7.5 percent, and Ford’s may slip 2.4 percent, according to the survey.
While the return to a near-record sales pace means more revenue for the auto industry and more analysts recommend buying Ford and GM than selling it, analysts such as Adam Jonas of Morgan Stanley cautioned this month that the sales cycle may be near its top, leaving little room to grow profitably.
Sales will probably rise to an 18 million pace that “if not completely profitless, may at least borrow too liberally from the future, compromising the sector multiple,” Jonas said in a report this month. “This translates to a poor risk-reward time for U.S. autos.”
Autos have led the comeback of U.S. consumer spending, he said, as available credit allows for longer loan terms and lower monthly payments. When credit eventually tightens as the Federal Reserve raises interest rates and used-car prices fall from near-record highs, consumers will turn away from new vehicles, he said, while acknowledging it’s difficult to predict when the market may turn.
With the average car on U.S. roads more than 11 years old, Emmanuel Rosner at CLSA sees pent-up demand being released by stronger consumer confidence and continued credit availability.
“With U.S. sales now running at normalized levels, monthly volatility is to be expected, in our view, and we remain comfortable with our expectations for full-year 2014 sales to reach 16.5 million units, up from 15.6 million units in 2013,” he wrote.
It’s a far different picture than in 2001, when consumer activity, especially for big-ticket items such as autos, fell off after the 9/11 terror attacks. To spur sales and avoid idling factories, GM began a program called “Keep America Rolling” with no-interest loans on most vehicles.
Other automakers followed and while light-vehicle sales exceeded 17 million for a second time, GM’s income fell 87 percent. Ford, which paid $2.1 billion to replace tires on Explorer sport-utility vehicles blamed for 271 highway deaths, swung to a $5.45 billion loss.
Now the U.S. market is growing without Detroit pouring on major incentives. Discounts and other promotions tracked by researcher Autodata, averaged $2,741 this year through August, $51 less than the average for 2008. Since then, traditional domestic automakers have reduced incentive spending by 7.9 percent, while Asian automakers increased it by 14 percent.
New cars and trucks are also benefiting from a relative shortage of low-mileage used cars. That tight supply makes those two- and three-year-old models almost the same price as a new one -- at least close enough to draw shoppers to the new-car end of the market.
“A lot of people that were buying pre-owned are switching to new vehicles,” said Joe Griffin, Nissan sales manager for Youngblood Auto Group in Springfield, Missouri. “If somebody comes in to buy a pre-owned sedan they’ve seen online for $19,999, but then see that they can get a brand new model for $22,000 with the manufacturers’ incentives, the new model is a better value.”