Looking more at US auto sales for April and what we might see going forward…

From Ward’s Auto

Ford’s U.S. sales in April rose 11.3%, compared with year-ago, to 186,572, a tally that could have been higher if not for a shortage of key models, the auto maker’s top sales analyst says.

“We exceeded our sale’s plan for the month but acknowledge that dealers could have sold more if they had more of certain product lines,” George Pipas says in a conference call with analysts and the media.

Smaller cars, in particular, saw sales hampered by the shortage. The Focus C-car, despite posting a 17.8% year-over-year gain on 17,265 deliveries, was the poster child for demand outstripping supply.

Production of the all-new ’12 Focus recently began at the Michigan Assembly Plant in Wayne, MI. The factory was still in ramp-up mode last month, which led to inadequate stock for some dealers, says Ken Czubay, vice president-U.S. marketing, sales and service.

“It was really the first month for the (new) Focus, and dealers were selling them off the truck,’ he says. “It takes a while to stock shelves.”

Deliveries of Fiesta B-car also were affected by supply shortages, numbering only 9,147 units in April.

Despite the limited supply, the two models played key roles in helping Ford make inroads into California, the largest auto market in the U.S. and where domestic auto makers historically have struggled. Pipas says Ford’s sales in California jumped 34% last month and are up 37% year-to-date.

“The U.S. frequently is referred to as a mature market,” he says. “But there is a tremendous opportunity outside our traditional geographic areas of strength.”

The new Explorer SUV, built at Ford’s Chicago assembly plant, is another victim of supply constraints, with overall sales surging 129.0% in April to 12,593 units.

Currently about one-third of the factory’s annual capacity is dedicated to the Explorer, Czubay says. The plant also builds the Ford Taurus and Lincoln MKS fullsize sedans.

Neither Pipas nor Czubay provide details on what Ford will do to address the shortage of key models, saying only that the auto maker is doing its best to keep up with demand. “I don’t think we’re taking any downtime,” Pipas quips.

Several other Ford models made a strong showing in April, as well. Deliveries of the Fusion midsize sedan climbed 17.8% from like-2010 to 19,904, while Mustang sales spiked 53.1% to 8,180.

Pipas credits some of the Mustang’s gain to higher fleet sales. “Retail and fleet sales of Mustang were both up, but last year we were balancing out the old-model Mustang. And when you balance out product, there are very few fleet deliveries.”

Sales of the Ford Escape cross/utility vehicle rose 7.3% in April to 20,170. Czubay says as gas prices rise, the auto maker is seeing an increase in demand for the 4-cyl. Escape models. “There’s a 50-50 mix between 4-cyl. and V-6 models,” he says. “A year ago or so, about 40% (were 4-cyl.).”

Nevertheless, the Escape last month relinquished its lead in the small CUV segment to the Honda CR-V, a title Ford took from the longtime leader in March. CR-V sales edged out the Escape by 1,693 units.

Deliveries of Ford’s top-selling F-Series pickup rose 3.7% to 42,723, with about 50% of buyers opting for models equipped with a V-6. Of total F-Series sales, about one-third were Super-Duty models, the auto maker says.

The fleet mix for the month was 36%, with 20% of total deliveries going to commercial and government entities and just 16% to the less-profitable daily rental industry. Ford’s year-to-date fleet mix is 34%, with commercial and government accounting for 19% and rental 15%.

“For the full year, we’ll have a daily rental mix in the 12%-13% range,” Pipas says. “That’s consistent with years past.”

Ford says it finished April with 396,000 vehicles in inventory, including 109,000 cars and 287,000 trucks, which Pipas says represents about a 54 days’ supply.

Here is AutoNation’s ($AN) Mike Jackson on CNBC this am. For those who do not know who Jackson is, his group is the single largest auto dealer in the US.

Here is Jackson on CNBC this am:

What a waste to have him on for 3 min. The guy knows more about the auto industry than ANY guest they have EVER had on. Should have given him 20mi. and peppered him w/questions on the the US makers Ford ($F) and GM ($GM). Maybe a thought or two on the Japan situation and what he is seeing with Honda ($HMC) or Toyota ($TM)? ? Frustrating…

Anyway, for us the takeaway is gas prices are high to stay (prob ~$4) and that means a shift to fuel efficient cars. That favors Ford as we lead in every auto and truck category for fuel efficiency. The V6 engine Jackson was talking about is Ford’s, perhaps that is why Ford new cars sales are up 18% for his group. Based on the article above, I think Q2 for Ford, as they catch up and get new models on the shelves so to speak looks even better than perhaps I thought it would be. Call it guarded optimism….

Another note….no, I am not concerned above the inventory shortages. These are not part related (Japan) but demand related. For far too many years the US auto industry overproduced and has to drastically cut price to move metal. They seem (for now) to have realized to errors in that line of thinking. Keeping a tighter leash on supply vs demand ensures less incentives are needed (as shown below) and means a larger profit per vehicle.

As we expected Japanese automakers are going to see significant production problems due to the earthquake. Both Honda ($HMC) and Totota ($TM) have already seen extended closings and we would look for both more of these and for parts shortages to exacerbate the issue.

This leave a huge opening for Ford ($F) and GM ($GM). Given the momentum we have al;ready seen from Ford over the past year and into Q1 2011, we look for them to capitalize on this in a major way.

AutoNation ($AN) CEO Mike Jackson (emphasis mine):

“We would like to extend our deepest sympathies to the victims of the earthquake in Japan,” said Mike Jackson, AutoNation’s Chairman and Chief Executive Officer.

Commenting on the earthquake’s impact on the auto industry, Mr. Jackson said,

“Based on current information from the manufacturers, we expect production disruptions will significantly impact product availability from Japanese auto manufacturers in the second and third quarters of 2011

. However, we believe that the auto retail market and underlying consumer demand will continue to recover throughout 2011. Our planning assumption for 2011 industry new unit sales remains 12.8 million units, and we believe that we will manage through these production shortfalls.”

While 52% of AutoNation’s total new unit sales in 2010 were produced by Japanese manufacturers, approximately two-thirds of those units are assembled in North America.

Mr. Jackson concluded, “The situation is still developing, and therefore at this time it is difficult to fully predict the impact of the production disruption on the industry and our business.”

There is no “one” indicator. BUT, when we combine this with rail traffic and ASA staffing trends, I think you have to want to be bearish to see negative economics trends here….

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DETROIT (AP) — Trucks outsold cars by the highest margin in nearly five years in October, a sign the economy may be starting to improve.

These trucks aren’t the tractor-trailers that haul freight. They’re pickups, SUVs, minivans and smaller SUVs. The category — known as light-duty trucks — made up 54 percent of all new U.S. vehicle sales last month, compared with 46 percent for cars, according to industry tracker J.D. Power and Associates. It’s the biggest difference since December 2005, when trucks accounted for 56 percent of sales.

Strong truck sales make economists giddy because they mean people are willing to spend money again. Small business owners feel comfortable enough to buy a new pickup truck or delivery van for their company; and regular folks are confident enough in their jobs and finances to take on beefy SUV payments.

Here are the trends behind the stronger truck sales:
— People are spending more. Personal savings rates are coming down. The most recent figures show the rate has decreased from a yearly high of 6.4 percent in June to 5.3 percent in September – meaning people don’t feel the need to hoard cash at the bank.
— Gasoline is still affordable. Truck sales have been sensitive to high gas prices in the past, falling dramatically when gas topped $3 and $4 a gallon in 2008 and drivers were spending $100 to fill their tanks. After nearly eight straight years of dominating the vehicle market, truck sales quickly declined after that gas price spike, which was driven by fears that demand from China would constrain U.S. supplies. Now, gas prices are around $2.80 a gallon, according to AAA, higher than the $1.50 to $1.90 range through the peak of truck and SUV popularity, but not enough to hinder sales.
Truck sales are “encouraging, because we know that gasoline prices have not been particularly low recently,” says Dana Johnson, chief economist for Comerica Bank.
— Promotions are helping. Ford, which just wrapped up a month of zero-percent financing offers on its F-series pickup trucks, saw sales jump 24.2 percent in October. George Pipas, manager of sales analysis for Ford, says sales of the F-series have been rebounding this year, as small business owners return to the market.

“Last year, businesses were very cash-strapped, and many small businesses were having to conserve cash and defer any nonessential purchases, and vehicles fall into that category,” he says.

While some buyers may need to buy a truck, they don’t necessarily have to buy a new one. And given the increasing durability of cars and trucks, drivers can hang onto their vehicles for longer.

This year, sales to commercial customers are rebounding, Pipas says, which is proof that small businesses are buying trucks and cars again. Ford vehicles, including F-series trucks, Econoline vans, and the Ford Escape and Ford Taurus sedan, make up about 80 percent of the increase in commercial sales

The economy is still weighing on Felicia Smith, 44, of Silver Spring, Md. The office worker says she sometimes worries about unemployment and the economy, but she thinks it’s time to buy a new car. She’s looking to get something bigger than the 2005 Mazda Tribute small SUV she currently owns.

“I’m a little nervous” about the economy, she says. “But I need something bigger…. It’s about finding something that’s going to make me happy.”

AutoBation CEO Mike Jackson said this last year…”I’ve always said, when you want to know when this economy is going to turn, just watch the pickup sales. All those sales are small businesses and entrepreneurs, and when they see the prospect for better business, they’re going to go out and finally buy a new pickup truck. So this is a key indicator of what’s going on in the U.S. economy. This is small business America saying that the worst is over, I see opportunities in the future, I feel confident enough to go out and buy a new truck.

Pickup trucks are bought by small business entrepreneurs who have their finger on the pulse of the U.S. economy. It’s an expression of confidence in future of economy. They don’t buy until they see the prospects for business are brighter.”

Those with a negative view will harp on the “rate of growth falling” as a sign things are falling apart. While true the rate of growth has slowed , it is also true that this is a common occurrence this time of year as the following chart indicates (note “baseline” and “cyclical” lines)

Here is the hard data (click to enlarge)

So yes, recent growth is below the 4 week rolling average but it is still growth. It is also true that we typically see traffic dip into Q3. Again, while the rate of growth has slowed, the last three weeks have seen total rail car volume of 580,838, 647,975 & 655,971 cars….slowing increasing. It should also be noted that the 655k cars last week were the second highest total this year (659k in weeks 23 & 24). Further, this is total N. American traffic, including Canada and Mexico. While Canada is holding essentially flat, Mexican traffic has fallen ~40% during weeks 27 & 28 from prior weeks.

From that we can deduce that if total carloads the last three weeks have climbed, Canada has remained flat and Mexico has fallen, we are seeing considerable strength in the US rail system.

This is confirmed by the chart above that shows last weeks traffic showing considerable improvement almost across the board over the month to date numbers and inline with year to date numbers.

Those inclined to have a negative view will then point to the following charts:

Again looking at the data, we see seasonal weakness heading into Q1 and Q3 annually. That being said, the chart is a 4 week rolling average. If we drill down, we see after weakness in weeks 27 & 28 in which carloads fell from 19k in week 26 to 12k & 11K respectively in 27 & 28, they rebounded to just under 17k last week. While those two weak weeks will bring down the 4 week average, it would seem it is in the process of rebounding.

This also matches what the US’s largest auto dealer Mike Jackson of AutoNation told me last week reiterating his projections for the rest of the year.

Concern, the scrap metal reading, While we do expect continued growth in the US, we do want to see this reading level out and rebound. Continued weakness would be a cause for concern. My opinion of it is that after a unseasonably strong Q2 in which scrap traffic was up ~35% over last year there has been a slowdown that is temporary in nature and as we go through Q3, the current trend will begin to reverse. We’ll see….

It will also be interesting to see how this data is reflected across the web tomorrow….

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I have it before and will reiterate, Mike Jackson is one of the best CEO’s in any business. To have his company in this shape so soon after the recession is a testament to that.

Summary:

20% growth in second quarter revenue and retail vehicle unit sales over the prior year

Second quarter adjusted EPS from continuing operations was $0.38 ($0.31 on a GAAP basis), a 36% increase compared to $0.28 in the prior year ($0.30 on a GAAP basis)

AutoNation repurchased 20.9 million shares of its common stock for $414.4 million in the second quarter and on July 20 the Board of Directors authorized the repurchase of up to an additional $250 million of AutoNation common stock

AutoNation announces the acquisition of Toyota Mall of Georgia, one of the largest Toyota stores in the United States, and two Hyundai stores, one in Atlanta and the other in Seattle.

Today we reported second quarter adjusted EPS from continuing operations of $0.38, a 36% increase compared to adjusted EPS from continuing operations of $0.28 in the prior year. On a GAAP basis we
reported EPS of $0.31 compared to $0.30 a year ago.

Second quarter 2010 revenue totaled $3.1 billion; compared to $2.6 billion in the year-ago period, an increase of 20% and we had increases in all of our revenue categories. In the second quarter, total U.S. industry new vehicle retail unit sales increased 12%, based on CNW research data. In comparison, during the same period, AutoNation’s new vehicle unit sales increased 20%.

The key to our top line growth is driving operational excellence through the use of leading technology and processes combined with inventory optimization. Combining that with our best in class, disciplined cost structure will continue to drive our industry leading margins. We believe that we have a compelling opportunity to create significant value for stockholders over the next several years as the industry recovers. We have made a major investment of over a half billion dollars in our company through stock repurchases, together with the acquisitions that we announced and our continued reinvestment in our existing stores, reflecting our confidence in AutoNation’s financial and operating strength and the long-term prospects in the auto industry.

The combination of these drivers presents a significant long term growth and value creation opportunity.

My Talk with Jackson

Last year you spoke of “postponed demand”. How much of the increase you are seeing is that vs growth (people trading up)?

A significant part is the recouping of postponed demand. Jacskon said they always had high confidence in 2010 projections, a “no brainer” he called them. “Of course there will be some months were the number flucuate, but the trend is clear”. Credit improvement is being seen in all areas. Traffic and demand always there (2008-09), problem was credit no available. Sales improvement crosses all geographies/manufacturers. 40% increase in truck sales “small business owners gaining confidence”. 30% in Ford and Chevy. People have said Fla. and Cal are dead, sales in both areas up >20%. Q3 2010 will beat cash for clunkers # Q3 2009. Close to 12m annual run by Q4

Do you see the “Double dip” people fear?
For auto recovery to go to next level, employment and housing must recover. He feels both will begin stronger recovery in 2012-13. Jackson feels industry will return to 15m units by 2012-13. Is holding off on specific 2011 guidance until Q4 or Q1 2011 (this is not unusual as Jackson does not make prediction he cannot be 100% certain of. Jackson says there are “those that talk about recovery and those who act on it”. By making dealership purchases and expanding capex on stores, he is “acting on it”. While Jackson refrained to make a general macro comments, one can easily extrapolate from his actions and projections for upcoming years they see the economy continuing to improve. Clearly backing 2010 guidance implies they do not see a “double dip” or even a significant slowdown in the second half or 2010.

This is a very strong gauge. In 2008-09 Jackson was cutting capex budgets and retrenching his company to weather the upcoming storm. He generally has been ahead of the curve so his outlook and comments carry significant weight.

Expansion into northern markets?
Not now…expanding footprint in current area..

Pricing?
Firm, incentives falling. Credit has healed “across the board” and even subprime loans are getting done

How is luxury market doing?
Growing 15% but did not fall as far in downturn, they are “very optimistic”"

I have it before and will reiterate, Mike Jackson is one of the best CEO’s in any business. To have his company in this shape so soon after the recession is a testament to that.

Summary:

20% growth in second quarter revenue and retail vehicle unit sales over the prior year

Second quarter adjusted EPS from continuing operations was $0.38 ($0.31 on a GAAP basis), a 36% increase compared to $0.28 in the prior year ($0.30 on a GAAP basis)

AutoNation repurchased 20.9 million shares of its common stock for $414.4 million in the second quarter and on July 20 the Board of Directors authorized the repurchase of up to an additional $250 million of AutoNation common stock

AutoNation announces the acquisition of Toyota Mall of Georgia, one of the largest Toyota stores in the United States, and two Hyundai stores, one in Atlanta and the other in Seattle.

Today we reported second quarter adjusted EPS from continuing operations of $0.38, a 36% increase compared to adjusted EPS from continuing operations of $0.28 in the prior year. On a GAAP basis we
reported EPS of $0.31 compared to $0.30 a year ago.

Second quarter 2010 revenue totaled $3.1 billion; compared to $2.6 billion in the year-ago period, an increase of 20% and we had increases in all of our revenue categories. In the second quarter, total U.S. industry new vehicle retail unit sales increased 12%, based on CNW research data. In comparison, during the same period, AutoNation’s new vehicle unit sales increased 20%.

The key to our top line growth is driving operational excellence through the use of leading technology and processes combined with inventory optimization. Combining that with our best in class, disciplined cost structure will continue to drive our industry leading margins. We believe that we have a compelling opportunity to create significant value for stockholders over the next several years as the industry recovers. We have made a major investment of over a half billion dollars in our company through stock repurchases, together with the acquisitions that we announced and our continued reinvestment in our existing stores, reflecting our confidence in AutoNation’s financial and operating strength and the long-term prospects in the auto industry.

The combination of these drivers presents a significant long term growth and value creation opportunity.

My Talk with Jackson

Last year you spoke of “postponed demand”. How much of the increase you are seeing is that vs growth (people trading up)?

A significant part is the recouping of postponed demand. Jacskon said they always had high confidence in 2010 projections, a “no brainer” he called them. “Of course there will be some months were the number flucuate, but the trend is clear”. Credit improvement is being seen in all areas. Traffic and demand always there (2008-09), problem was credit no available. Sales improvement crosses all geographies/manufacturers. 40% increase in truck sales “small business owners gaining confidence”. 30% in Ford and Chevy. People have said Fla. and Cal are dead, sales in both areas up >20%. Q3 2010 will beat cash for clunkers # Q3 2009. Close to 12m annual run by Q4

Do you see the “Double dip” people fear?
For auto recovery to go to next level, employment and housing must recover. He feels both will begin stronger recovery in 2012-13. Jackson feels industry will return to 15m units by 2012-13. Is holding off on specific 2011 guidance until Q4 or Q1 2011 (this is not unusual as Jackson does not make prediction he cannot be 100% certain of. Jackson says there are “those that talk about recovery and those who act on it”. By making dealership purchases and expanding capex on stores, he is “acting on it”. While Jackson refrained to make a general macro comments, one can easily extrapolate from his actions and projections for upcoming years they see the economy continuing to improve. Clearly backing 2010 guidance implies they do not see a “double dip” or even a significant slowdown in the second half or 2010.

This is a very strong gauge. In 2008-09 Jackson was cutting capex budgets and retrenching his company to weather the upcoming storm. He generally has been ahead of the curve so his outlook and comments carry significant weight.

Expansion into northern markets?
Not now…expanding footprint in current area..

Pricing?
Firm, incentives falling. Credit has healed “across the board” and even subprime loans are getting done

How is luxury market doing?
Growing 15% but did not fall as far in downturn, they are “very optimistic”"