Auto Sales

Stronger than expected US auto sales point to an constructive August retail sales report, when it is released on Sept 15. However, the risk is that due to lighter back-to-school traffic, sales excluding autos and gasoline may be somewhat softer than the headline.

Total seasonally adjusted US auto sales rose to 14.1 mln units at an annualized rate, the highest since May 2008. It compares with consensus of 13.3-13.5 mln and July's 11.3 mln. Domestic producers sold at a 10.2 mln pace after 8.4 mln in July. Ford and GM estimate that if it weren't for the government's incentive scheme, auto sales would have been around 10.5 mln from 9.5 in June, before the cash-for-clunker program.

The auto sales report also underscores a theme investors are watching: inventory developments. They are lean. Yesterday's data show Chrysler with 28 days, Ford 36, GM 48, Toyota 11 and Nissan 22 days. Several producers have already announced re-opening of factories and production lines. The lack of inventory might help account for some of the gap between the sales performances of individual producers and analyst forecast

The US cash-for-clunker program ran essentially three weeks (July 27-Aug 24). The risk is that unless the producers devise new incentives sales will likely slip this month.

German auto sales for August reported earlier today were up for the 7th consecutive month. Registrations are up by 28% year-over-year. however, in Germany rather than boost production, the cash-for-clunker program that ends today does not appear to be leading to an increase in output. Auto output fell for the 11th month in August, while auto exports matched the streak. The German cash-for-clunker program was worth 2500 euros (~$3600) to buy a new cars and scrap an auto at least nine years old. Separately, French auto sales in August rose 7%.

This illustrates another point, the recovery in manufacturing appears to be global in scope as was its collapse. Two observations here are worth sharing. First, as has been seen in recent days, it is possible that at least part of the recovery story gets factored into the market so that there is less of a response to fundamental good news. Yesterday, for example, the stock market did not derive much strength from news of a stronger than expected US mfg ISM. Second, the pace of improvement in manufacturing (globally) seem unlikely to be sustained and some leveling out in the coming months should not be surprising.