December Sales Giving a Warm Feeling
Could it be time to finally say auto sales are coming back and the momentum will build from here?
Halfway through the month we're hearing more and more cautiously optimistic comments about the pace of sales. And almost all of them say the same thing: Sales continue to pick up and people are increasingly coming into showrooms around the country. Even more encouraging, the sales momentum is being fueled primarily by increased demand and less by a huge spike in incentives.
The latest evidence supporting greater auto sales comes from J.D. Power. The firm estimates the December sales rate (SAAR) is 12.4 million vehicles, with the retail SAAR at 10.8 million. If this forecast is accurate, it means December sales will be up 14% compared to December of last year. And it will mark the third straight month where the industry sales rate topped 12 million. To quote one industry veteran, "One month of sales above 12 million is nice, two months is encouraging. Three months tells me sales will build from here."
If we end December on an up note with full year sales coming in around 11.5 million, I'll be curious to see what it sets up for next year. Could industry sales reach 13 million? I doubt that would happen for the full year, but I could see a month or two getting up close to that level. Most of the sales forecasters in the industry tell me they expect next years SAAR to be 12.5 million. If that happens, expect the auto makers to rack up several more very profitable quarters.
Welcome news in Detroit, Japan, Europe, and on Wall Street where investors will push the auto stocks higher.
The skeptics are already talking about whether higher gas prices or the looming UAW contract talks (contract expires next September) will slow down the auto stocks next year. Personally, I think those potential problems are being overstated. If gas prices move higher, the auto makers are better positioned with a wider array of smaller, more fuel efficient vehicles. As for the UAW, I expect the talks to be filled with the usual rhetoric about workers getting their "fair share," but I don't sense a looming, long term strike at Ford, the only one of the Big 3 without a "no strike" clause in the current UAW contract.
The bottom line: December sales appear to be a holiday gift that will have the automakers pointing to an even stronger year in 2012.
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