After a somewhat weaker July, where the SAAR came in at 13.8-14.0 million units, sales rebounded aggressively during August. TrueCar.com estimates the August SAAR at 14.2 million units, while Edmunds anticipates the SAAR to come in around 14.5 million units for the month. AutoData estimates the SAAR came in at 14.52 million units. Several sources report that incentive spending is trending down when compared to last year, suggesting profitability in the US will be robust.
Best Ideas Newsletter holding Ford (click ticker for report: ) saw total sales surge 13% year-over-year, selling 197,249 units (retail sales increased 19%). The 13% increase was higher than expected, and we were most pleasantly surprised to see F-Series sales jump 19% year-over-year, after the model only increased marginally last month. The new Escape has been a blockbuster success, with sales surging 37% to a touch over 28 thousand units—an August record. The Escape’s strength, combined with strong gains from the Fusion, Focus and Taurus, should continue to boost Ford’s operating margin. Lincoln’s headline sales increased just 1.4%, but its adjusted sales–after excluding the now discontinued Town Car–increased an impressive 18.4%. Though some Town Car sales are likely being replaced by other models, we think Lincoln is slowly gaining traction with younger consumers and shedding its “old” image. We’re big fans of Ford at its current valuation.
General Motors (click ticker for report: ) saw sales grow 10% year-over-year during August to 240,520 units. Retail sales outpaced this mark, growing 11% thanks to strength across all brands. The Chevy Equinox, which is comparable to a Ford Escape, similarly set an August record with unit sales increasing 22%. This light SUV/crossover category–marked by decent size and better fuel economy than larger models–seems to be the new sweet spot in the US market, as Acadia and SRX sales increased 11% and 26%, respectively. GM’s valuation isn’t quite as compelling as Ford’s, in our view, but we still think shares are cheap. As with its competitor, overcapacity in Europe will weigh on profitability in the near term. Shares score just a 3 on the Valuentum Buying Index (our stock-selection methodology).
US sales at Toyota (click ticker for report: ) surged 46% to 188,520 as the carmaker continues to lap weak summer months following supply-chain disruptions. Though sales gains didn’t exceed expectations, the firm experienced strength from the Camry, Corolla and Prius, which drove a 47% increase in passenger car sales. Light truck sales grew 48%, driven by strong Tacoma (pick-up) sales, though the F-Series still dwarfs its competitors. Shares are trading at a discount to our fair value range, and they score a 7 on the Valuentum Buying Index, so we’re intrigued somewhat by shares at this level. The firm isn’t as highly leveraged to Europe as Ford or GM, but profitability has been dampened by the strong Yen. Yet, given the enormous level of global macroeconomic uncertainty, we think our current Ford position in our Best Ideas portfolio gives us ample exposure to the auto sector.
Volkswagen (VLKAY) sales surged 63% year-over-year, to 41,011 vehicles, which was the company’s best August since 1973. With its focus on the US market, the firm has made significant strides toward becoming a major player. Audi is quickly becoming the Michael Kors (KORS) of US cars, stealing share from the established players like BMW (BMW) and Mercedes. Fiat’s Chrysler posted a 14% increase in August to 148,472 units, continuing a 29-month streak of year-over-year growth. Though we don’t like the brand’s position as much as we like Ford’s, we think the brand could steal some share from GM due to its superior marketing and fresh styling.