2013 turned out to be smooth sailing for the auto industry. This was confirmed by the recent reading of the U.S. auto sales numbers.
U.S. auto sales in 2013 reported an 8% annual jump to 15.6 million vehicles, rendering 2013 as the best year since 2007. This was largely thanks to an improving U.S. economy, upbeat labor market supported by falling unemployment, a range of new models, and pent-up demand from buyers and discount offers by automakers.
All the major automakers, excluding Volkswagen (VLKAY), reported a year-over-year jump in sales. Ford (F - Analyst Report) stole the show, with an 11% rise in sales, while other auto behemoths, such as General Motors ((GM - Analyst Report)), Toyota ((TM - Analyst Report)), Honda, Chrysler and Nissan, posted high single-digit sales growth.
Though the yearly sales numbers lifted market sentiment, sales for the month of December were lackluster and were almost in line with the year-ago level of 1.36 million.
While GM, Volkswagen and Toyota Motor Corp. witnessed a year-over-year dip in sales, increased incentives to car dealers enabled Ford and Honda to report high sales during the last month of 2013.
The uninspiring December numbers can be partly blamed on strong auto sales numbers in November, which robbed sales from December. Promotional offers during Thanksgiving and Black Friday gave a huge boost to November’s sales, which also represented the best month for auto sales in nearly seven years.
Moreover, Christmas shopping was also one of the key factors which kept consumers away from car shopping. Automakers also blamed cold weather as one of the factors for deterring consumers away from dealers, thus hampering sales (read: Will the Auto ETF Keep Soaring in 2014?).
Is the Trend Expected to Continue?
December wasn’t a good end for the auto industry, as sales, based on a seasonally adjusted rate (SAAR), declined to 15.4 million units in December 2013 from 16.4 million vehicles in November 2013. Moreover, a rise in dealer inventories is also a matter of concern.
Also, some economists are worried that growing competition and higher incentives are likely to eat into the profits of the automakers (also see Play Surging Electric Car Demand with the Lithium ETF).
However, the December figures should not discourage investors, as some analysts believe that 2014 would also turn out to be a promising year for the auto industry.
They expect U.S. auto sales in 2014 to surpass the 16 million unit threshold. A plethora of forthcoming new model launches is expected to drive sales higher in 2014. In fact, the performance of new models was the best during the Christmas month.
The improving industry trend is not just restricted to the domestic market. Europe as well as emerging markets are also showing signs of strength, signaling global optimism for this industry.
Both Ford and GM have reported record high sales for 2013 in China. Moreover, Ford has already announced its intention to add 5,000 jobs in 2014, marking the biggest recruitment effort in almost five decades.
If this still sounds unconvincing, then surely the latest global auto sales numbers should entice investors. For the first time in history, global auto sales for 2013 have crossed the 80 million vehicles threshold. Consulting firm IHS Automotive recently reported that global auto sales have jumped 4.2% to 82.84 million vehicles in 2013.
The world’s two largest auto markets – China and the recovering United States- largely enabled such a stellar performance (read: China ETFs Tumble to Start 2014).
Also, according to the latest data from IHS automotive, global auto industry sales would rise to 85 million this year and 100 million by 2018.
Thus an improving economy led by stronger job and housing market is expected to drive future growth for the auto industry. Moreover, record low auto loan rates will also support the industry.
How to Play?
While looking at a number of auto stocks is a solid way to play this trend, investors can obtain a global exposure to this space with the First Trust Nasdaq Global Auto Index ETF ((CARZ - ETF report)).
The ETF tracks the NASDAQ OMX Global Auto Index, giving investors exposure to automobile manufacturers across the globe. The product holds 38 stocks in the basket and is highly concentrated in its top 10 holdings with 60% of assets going to these ten firms. Daimler, Volkswagen AG (Preference Shares) and Honda Motor Co., Ltd. are the top three holdings with a combined share of 24%.
Though the fund’s top holding – Volkswagen AG – reported a year-over-year drop in sales, its luxury car brands, Porsche, Audi and Bentley, have all posted record sales for 2013.
Moreover, Volkswagen has set a goal to become the world’s biggest car maker by 2018. This should clearly work out in favor of CARZ.
In terms of country exposure, Japan takes the top spot at 34.26% while Germany (24.39%) and the U.S. (19.45%) also have double-digit exposure in the fund (read: 3 Global ETFs for a Diversified Portfolio in 2014).
The ETF has amassed $53 million in its asset base and sees light volume. The product charges 70 bps in annual fees from investors.
The product returned a solid 35.6% in 2013.
CARZ currently has a Zacks ETF Rank of 2 or ‘Buy’ with a High risk outlook, suggesting that the product is expected to outperform the market in the coming months.
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