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Auto Sales Dip in December: Can Automakers Rebound in 2019?

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Auto sales grew slightly in 2018 to 17.3 million vehicles. However, sales slumped once again in December, escalating worries of major carmakers. Automakers have been suffering for a while now with slowing demand for passenger cars.

Also, trade disputes between the United States and China seem to be finally taking its toll on automobile stocks. Although total auto sales for 2018 exceeded analyst estimates despite a cooling global economy and rising interest rates, the second half of the year was particularly tough for automakers, as the industry braced for a worse 2019. 

Auto Sales Decline in December

Auto sales jumped marginally to 17.3 million vehicles in 2018, defying predictions that it would be a bad year for the industry. Edmunds.com had predicted full-year sales of 17.3 million, while Cox Automotive had projected an uptick of 17.2 million. In 2017, full-year auto sales totaled 17.2 million.

That said, the auto industry continues to be under pressure, with major automakers reporting a decline in sales in December. Total vehicle sales for General Motors (GM - Free Report) in the fourth quarter fell 2.7% to 785,229 vehicles. Ford Motor Company’s (F - Free Report) sales were down 8.8% in December and down 3.5% for the full year. Toyota Motor Corporation’s (TM - Free Report) sales fell 0.9% in December to 220,910 vehicles.

However, sales of Fiat Chrysler Automotive N.V. (FCAU - Free Report) and Honda Motor Co, Ltd. (HMC - Free Report) jumped 14% and 3.9%, respectively, in December.  Honda has a Zacks Rank #1 (Strong Buy). General Motors and Fiat each carries a Zacks Rank #2 (Buy), while Toyota has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Focus Shifts to SUVs, Pickup Trucks

Auto sales have been suffering for the last few months, with demand for passenger cars slowing as an increasing number of Americans are going for pickup trucks and SUVs. Till a decade ago, sedans and passenger cars accounted for more than 50% of the new vehicle market.

Ford has already planned to abandon all passenger cars, except Mustang, and ramp up production of its SUVs and trucks. General Motor’s decision to shut three assembly plants, including Detroit and Ohio that are involved in the production of a series of slow-selling sedans, too is a reflection of this. Also, Honda plans to roll out a new utility vehicle for Los Angeles.

Tough Year Ahead For Carmakers

Demand for SUVs and pickup is expected to grow through 2019. However, analysts feel it’s going to be a tough 2019, with auto sales likely to decline further. After a long Bull Run, U.S. auto sales were expected to decline in 2019 owing to higher interest rates that translate into higher monthly car payments for customers, eventually weighing on sales.

Moreover, the recent volatility in markets and concerns of slowing global economic growth could make customers take a cautious stance in the near term. Also, higher tariffs on cars owing to the ongoing trade spate between the United States and China seem to be affecting carmakers, with cost of vehicles going up. Given this scenario, automakers will have a tough road ahead in 2019.

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