Should Investors Leave Auto Stocks Behind This Spring?
According to Wall Street, the cold winter weather is responsible for holding back an economy that’s just itching to take hold. And as we’ve recently learned, when it comes to poor earnings and revenues, nothing makes for a better excuse than the weather. After all, the cold harsh winter that has blanketed much of North America doesn’t care how much money you make.
But while the cold winter weather might not care what area code people live in, the feeling is mutual—people in the wealthy area codes don’t care about the cold weather either, especially when it comes to auto sales.
February auto sales figures came in earlier this week, and it’s as if auto sales have flat-lined. Overall, February auto sales were unchanged year-over-year at 1.19 million for an annualized auto sales rate of 15.34 million—at the low end of the estimated 16 million the industry expects to sell in 2014. (Source: “U.S. Market Light Vehicle Deliveries February 2014,” Motor Intelligence web site, March 2, 2014.)
Leading the February auto sales’ non-event are the “Big 8” (General Motors Company; Ford Motor Company; Toyota Motor Company; Chrysler Group LLC, Honda Motor Co., Ltd.; Hyundai Motor Company/Kia Motors Corp.; Nissan Motor Co., Ltd.; and Volkswagen AG), which accounted for 1.06 million units, or 89% of the month’s sales.
Nissan and Chrysler were the only two Big 8 automakers to report year-over-year growth. Nissan reported year-over-year auto sales growth of 15.8%—ahead of analysts’ predictions of 12%. And Chrysler reported another solid month with auto sales up 11%—analyst forecasts were expecting an 8.8% increase. Chrysler surprised to the upside in January with an eight-percent year-over-year increase in auto sales from a projected 5.4% gain.
For the other six Big 8 automakers, it was another month of disappointment. Volkswagen led the pack with a -13.8% year-over-year decrease, followed by Honda (-7.0%), Ford (-6.1%), Toyota (-4.3%), Hyundai/Kia (-3.8%), and General Motors (-1.0%).
One automaker that has been making solid gains is Subaru. In January, Subaru reported 19% year-over-year growth; in February, its auto sales were up 24%.
For those who maintain the cold weather holds auto sales back, the increase in luxury cars must come as a surprise. Wealthy Americans faced the harsh winter weather and boosted Maserati auto sales by 426%! Sales for Rolls-Royce Holdings plc were up a more “modest” 165%, followed by Jaguar (30.2%), Porsche Automobil Holding SE (20.8%), Ferrari S.p.A. (4.5%), Mercedes-Benz (3.3%), and Automobili Lamborghini S.p.A. (2.4%).
Not all luxury automakers reported growth in auto sales. Maybach-Manufaktur reported a year-over-year decrease of -100%, followed by declines from AB Volvo (-14.1%) and Bentley Motors Limited (-1.1%). Still, high-end luxury cars managed to post pretty strong gains overall—especially when you consider the bad weather.
Even though spring is just two weeks away, chances are that most areas of North America will have to wait until April to see warmer weather. That means chances are good that auto sales could be flat in March—and that automakers may not be able to make up on lost winter sales until the summer. However, that only holds true if the weather is to blame. If depressed January and February auto sales are a result of a weakening economy, well, that’s an entirely different scenario.
From my perspective, durable goods sales are disappointing, wages are stagnant, consumer sentiment is flat, February housing data is less than encouraging, car sales are down, and car loan delinquencies are expected to grow in 2014—not the best indicators for sustained economic growth.
In light of a weak outlook, investors might want to steer clear of stocks that depend on consumer spending and instead research the Guggenheim Defensive Equity (NYSEArca/DEF) exchange-traded fund (ETF)—it’s up 3.8% month-over-month and 13.2% year-over-year. Utilities Select Sector SPDRA (NYSEArca/XLU) is another ETF investors may want to consider; it’s up 3.5% month-over-month and 12.0% year-over-year.