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Auto Sales Rise in May: Will Automakers' Joyride Continue?

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U.S. auto sales rose in May driven by a demand in pickup trucks and SUVs. May sales of new vehicles grew an estimated 2% despite rising gas prices. The U.S. auto industry has had a bumpy ride so far this year, with sales down in February, up in March and again down in April. However, the auto industry seems to be on steady track despite the projected auto sales slowdown for 2018.

That said, it needs to be seen how the auto industry performs in the coming months given that President Donald Trump recently imposed higher tariffs on imported steel form the European Union (EU), Canada and Mexico.

Also, the Commerce Department, which launched a national security investigation to check if vehicles and auto parts’ imports are threatening national security, might also dampen the spirits of automakers. On the other hand, China’s decision to slash tariff on imported cars bodes well for U.S. automakers.

May Auto Sales Grow on Robust SUVs, Pickup Trucks’ Demand

May sales for new vehicles in the United States grew an estimated 2% despite rising fuel costs. Automakers also said that an impressive Memorial Day weekend sales gave a boost to vehicle deliveries. Analysts at Barclays (BCS) had projected May sales increase of 3.6%, while Edmunds.com and Cox Automotive had projected an increase of 3.5% and 3.1%, respectively.

According to Autodata, May U.S. auto sales hit an annualized pace of 16.9 million, better than 16.6 million estimated by Cox Automotive. Sales were once again driven by robust demand for SUVs and pickup trucks, which accounted for almost 67% of sales. Average price of full-sized pickup trucks and SUVs increased to $48,213 and $63,349, respectively.

Ford Motor Company (F - Free Report) reported an increase in May auto sales, beating expectations of a sales decline. The company reported retail sales of 163,796 units. Total sales, including fleet customers grew 0.7% to 242,824 units.

General Motors (GM - Free Report) , which has joined Tesla, Inc. (TSLA - Free Report) , doesn’t issue monthly reports anymore but will be reporting sales figures quarterly. However, analysts are of the opinion that General Motors’ May auto sales grew an estimated 10%. General Motors has a Zack Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Fiat Chrysler Automobiles N.V. (FCAU - Free Report) reported an 11% rise in its May auto sales. The company’s May sales climbed to 214,294 units. Moreover, Fiat reported retail deliveries of 167,785 vehicles, its best since July 2005. 

The Road Ahead

Trump’s recent announcement to impose higher tariffs on imported steel and aluminum from the EU, Canada and Mexico is reason enough for domestic automakers to worry. Moreover, the Commerce Department, which recently launched a probe to scrutinize if cars imports are posing a threat to national security, could impose tariffs of 25% on imported cars. Naturally, foreign carmakers like Toyota Motor Corporation (TM - Free Report) , Honda Motor Co., Ltd. (HMC - Free Report) , Nissan Motor Co. (NSANY - Free Report) are anxious.

Also, the domestic auto industry might suffer if tariffs are imposed on car imports, as a number of U.S. carmakers have their production units offshore. General Motors sold 3 million cars in the United States in 2017. However, it produced only 2.2 million cars on home turf, which means it imports thousands of cars. 

However, China’s decision to slash tariffs on imported cars to 15% from the existing 25% will certainly lift the confidence of a number of automakers like Tesla and Ford. Tesla undoubtedly will benefit from this decision as it doesn’t have a local production unit in China. Ford too will not be troubled given that it has been striving to produce cars in China and has witnessed margins at its joint venture shrink significantly.

Given this scenario, it needs to be seen how the auto industry performs in the coming months. That said, a bullish U.S. economy, higher consumer confidence and unemployment rate hitting an 18-year low bode well for the auto industry, with auto sales expected to grow in the days ahead.

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