Shares skyrocket after huge month for U.S. automakers

1 Jun 2015 | Author: | No comments yet »

Higher Car Sales in May Could Trigger Ford, GM, FCA Rally on Wall Street [Updated].

NEW YORK: Shares of US automakers may finally be able to accelerate.Investors are closely awaiting next week’s May sales data, expected to come in near record levels.

Number-crunchers are paying close attention to the automotive space, as “Big Three” American automakers Ford Motor (NYSE: F), General Motors Co. (NYSE: GM), and Fiat Chrysler Automobiles (NYSE: FCAU) are set to announce May sales statistics next week. Meeting those forecasts could be enough to lift the sector – among the cheapest in the market – putting the sting of product recalls and tepid recent growth in the rear view mirror. Car buying platform Edmunds.com stated that a seasonal-adjusted rate of 17.4 million is expected to match the estimated sales of 1.6 million new cars and trucks in May.

According to chief investment strategist at Mainstay Management in Grand Blanc Michigan, David Kudla, sales for the month of May in Michigan crept towards $40 billion. And while April was a tepid month, May could represent a big comeback, thanks to lower gasoline prices driving demand for trucks and sports utility vehicles, both of which cost more and generate larger profit margins. Albin goes on to say, “The strong dollar created a headwind, and GM had some high-profile product recalls, but given current trends, I would expect sales growth to continue.” Finally, experts state, “Good data would make the Fed raise rates sooner. A senior analyst at Edmunds.com, Jessica Caldwell, reported that the timing of Memorial Day weekend was a large factor in the increase in car sales observed this May. His forecasted May statistics include sales hitting $40 billion, which is close to the record of $40.3 billion set in August 2014, while he also noted that the average age of cars in the U.S. is between ten and eleven years.

Caldwell noted that since Memorial Day came a week before the month ended this year, Americans were able to take advantage of sales deals for an extended window of time. Regarding the used car market, Caldwell cited one key driver for lower prices – a large number of post-lease vehicles returned, and getting sold as used cars. “There’s no sign that this surge in leasing will slow down anytime soon, so shoppers can continue to expect prices of these cars to stay relatively low as they continue to flood the secondhand market in the coming months and years,” she noted. Jack Ablin, chief investment officer at BMO Private Bank in Chicago, said credit for auto loans has seen expansion, which is helping the sector to grow. At the close of trading yesterday, GM was trading at $35.97, a decline of 1.15 percent, while Ford’s share prices were at $15.17, down 0.78 percent from the day prior. GM is the fourth-cheapest stock in the S&P by this metric, with StarMine estimating that shares should trade at $81.69, more than twice its Thursday closing price of $36.39.

Though the rise in shares caused by the sales is expected, it could be a bad new for the wider market as any sign of consumer strength could push the US Federal Reserve to raise the interest rates. I believe the stock market would sell off (on strong auto data) because it would shorten that timeline,” said Battle who expects a rate hike in the fall.

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