Can Auto Companies Keep Selling?

06/11/2014 12:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Recent auto sales data is analyzed by MoneyShow's Jim Jubak and he shares his thoughts on the importance of this industry's groups to the overall economy.

On June 3, we got a report of May auto sales. Auto sales ran at an annualized rate of about 16.8 cars, these are US sales. That's an 11% gain in May from May of 2013. It's really a very, very good rate of sales. What's been most interesting is that the companies that have done the best are some that coming off very low bought, low points in their cycles. Chrysler (DAI) and Nissan (NSANY) have both picked up. Among the companies that are doing pretty well but that are showing a big increase in sales, Toyota (TM), which picked up about 17% year to year and GM (GM) picked up 12 to 12.6. Ford (F) is a laggard at three.

What's interesting is that considering the number of recalls that General Motors and Toyota have made recently you wouldn't think that they would be showing new sales. Apparently, it's not dampening sales going forward at all. Recalls seem to now be, pretty much, as far as consumers are concerned, a fact of life. The weakness in Ford isn't about recalls. It seems to be about some of the models not selling as well because they're a little older in the tooth or the design is not catching on. Nothing really going on there with recalls, just a weakness in the product line.

The question really is going forward at 16.8 million units, how much higher can that go? I think the answer to that is, probably, a little higher as long as the US economy keeps chugging along. I'd look to see if we can get recovery in Chinese sales, which would add to the upside for GM and Volkswagen, which have pretty good exposure there. If you're looking for a growth story in autos, I would look to China. Like so many other things, think about this sector as being linked to the growth rate of the Chinese economy, just like iron ore or copper or so many other commodities because after all, at some point, autos are not that different and they've become commoditized. This is really a supply and demand issue, not so much a technology issue, or anything else.

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