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back to index backAMERItalk March,  2017


Autos: US Sales Solid in February; Demand Drivers Firmly in Place

US SAAR reached 17.5-17.6 million in February, versus analyst expectations of 17.5 million units. Importantly, core demand drivers (employment, income, confidence) support sales at current levels with potential upside if Trump policies stimulate higher GDP growth. Production schedules show solid growth (+2-3%) through the first-half of the year. As discussed in our recent auto note (link), we remain buyers of the auto suppliers and expect higher earnings growth/some valuation upside to drive +10-15% of additional upside by year-end.

In units, sales declined 1% yoy as strength in trucks (+7%) was offset by continued weakness in cars (-13%). Importantly, comps become easier moving forward with March-June 2016 SAAR averaging 17.0 million units.

We continue to believe solid auto demand drivers (employment, income, confidence) support current demand levels (mid-17 million units) with potential upside from acceleration in growth due to Trump pro-growth policies. Moreover, we see healthy dynamics in other investor “hot topics” with growth in ASPs outpacing incentives and inventories just modestly above normal levels.

February by the numbers:

----- OEMs gaining share: Volkswagen (+14% yoy), Subaru (+8%), Daimler (+7%), GM (+4%).

----- OEMs losing share: FCA (-10% yoy), Toyota (-7%), Ford (-4%).

----- Sales by Powertrain (in order of size): Gas (94% of total, -2% yoy), Diesel (+18%), Hybrid (+25%), Electric (+75%).

----- Sales by Segment: Pickups/CUVs (+10% yoy), SUV (+7%), Mid-size cars (-18%), large cars/vans (-14%).

----- Non-US sales by country (January figures): Mexico (+3% yoy), Canada (+2%).

Production schedules show growth spread across the first half of the year. Q1 production schedules ticked slightly lower and now call for 2-3% growth, 100-200bps below our estimate. Initial Q2 build expectations call for 2% growth, above our estimate for flat build.

Other hot topics:

----- Incentives. On its call, Ford said that industry incentives increased $380/vehicle yoy. Importantly, KBB estimates industry average transaction prices (ATPs) increased $600-700 yoy.

----- Inventory. We estimate domestic inventory levels increased one day sequentially to 83 days, consistent with the normal sequential increase. In units, inventory levels are roughly 110k units above normal levels. As we discussed in our January North America production note (link), there are a handful of platforms (e.g., GM cars, Ford F-Series) that account for most of the higher inventory levels. We will get full inventory data later this month.

To download 7-page report, please click here.

Source: BAIRD - GAI






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