The rising demand as the economy rebounds is welcome news for the U.S. automobile industry. As per J.D. Power and Associates, TrueCar.com, and LMC Automotive, auto sales are expected to reach 1.43 million vehicles for the month of May. Vehicles sales are estimated to rise in the range of 6% to 8% for May. Witnessing such surge in sales, General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Chrysler are boosting their production level this year during the summer, which is traditionally a sluggish period for car companies.
Solid sales expectation in May is particularly good news after the April slowdown which brought an end to five consecutive months which recorded seasonally adjusted annual selling rate above the 15 million mark. Americans are replacing their fleet of aging cars which average over 11 years old. The recovering housing sector and longer-term car loans at lower interest rates are building consumer confidence and leading to big purchases.
The resurgence of the U.S. auto sector has outpaced the economy and other industry sectors in the nation. Both J.D. Power and LMC forecast that sales in the retail segment would touch 1 million in May for the third consecutive month. Also, as the housing and construction sector continues to rebound, demand for full sized pickup trucks is to remain strong. This shall drive the bottom-line of the Detroit Three who are dominant in this segment as sales of pickups are much more profitable.
Another driving force that is boosting car sales is easy credit with convenient repayments. John Humphrey, Senior Vice President of Power, observes that while the transaction price per car has jumped 19% in the last six years, monthly installments have increased relatively much lower at 3%. The primary reason behind this is the increase in tenure for repayment backed by lower interest burden. Buyers are therefore rushing to replace their age old cars with new vehicles, giving better “fuel economy, safety and technology at an affordable monthly payment.”
What does all this mean for individual car makers?
The resurgent real estate sector is brilliant news for the Detroit players. TrueCar estimates General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) to record a rise of 8.5% and 20.1%, respectively, in their May sales. Chrysler’s sales are expected to tumble 6.2%. On the other hand, Japanese counterparts Toyota Motor Corporation (ADR) (NYSE:TM), Honda, and Nissan are estimated to report 5.1%, 6.8%, and 25.4% rise in revenue. Ford Motor Company (NYSE:F) and Nissan are estimated to report the largest sales gain year over year.
Asian car makers feeling the heat
Driven by growth in the housing sector, the Big Three are experiencing incredible sales rise this year. General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Chrysler are working at almost full capacity.
Asian automakers are witnessing a fall in their U.S. market share, which slipped to 44.9% for the first four months compared to 46.3% in the prior year period. Detroit players are experiencing market gains. Their market share improved to 45.9%, up from 44.4% share last year. General Motors, which plans to launch 23 fresh models this year, has shortened its summer shutdown and will close no factory unit to cater to the robust demand. The market share of the largest U.S. automaker rose to 18.1% in the first four months, up from 17.7% last year.