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Tuesday, June 3, 2014
Strong vehicle sales
Sales of light vehicles in May exceeded expectations (16.7 mil. vs. 16.1 mil.) and rose by 8.4% from their year-ago level. Vehicle sales are now up over 85% from their recession low—recording 12.5% annualized gains in the past five years—and are very close to regaining their pre-recession level (sales averaged about 17 mil. units a year from 2000-2006). This is quite impressive.
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Scott, what do you make of the channel - stuffing claims Zerohedge makes regarding sales of new cars? I realize they are quite negative on everything, but they do make a strong case and have been ahead of the curve on many things...
Using seasonally adjusted data for auto sales is whacko economics. See here what happens when you use a simple 12 month moving average. And I now believe the stories about channel stuffing.
http://advisorperspectives.com/dshort/guest/Lance-Roberts-140604-Auto-Sales.php
It would appear Lance Roberts knows .. pretty much nothing.
Businesses hold higher inventories when they have higher sales. In fact, the following statement of his was ludicrous in the light of the chart just below it:
"However, if sales are stronger than production, the ratio should be at lower levels which is a sign of a healthy environment."
The chart just below that statement showed inventories *cratering* as the economy collapsed in both 2001 and 2009 as the economy went into recessions. And then he has the audacity to tell us low inventories are *healthy*???
And contrary to what one might read on Zerohedge, the monthly auto sales figures reported by the auto companies are, in fact, retail sales figures to final customers, not "channel stuffing" dealer lots with unwanted inventory. I can prove this.
Zero Hedge's mission in life is to spin all positive news in a negative direction.
How anyone can fail to be impressed by an 85% increase in the production of an important component of the U.S. economy is beyond me. That is a huge change on the margin that almost certainly impacts many other sectors in a positive fashion.
I would concede that the rate of increase in vehicle sales is definitely slowing. Still, it remains quite positive.
I don't buy the "channel stuffing arguments."
@PerformanceSpeaksForItself:
Zerohedge spends all its time shouting "channel stuffing" by showing absolute sizes of GM inventories, but they provide no context at all. For starters, read my reply right above.
Second, the absolute size of inventories is not the measure to look at if you're worried about being over-supplied - that would be days of inventory. Auto makers like to have about a 60-day supply of autos in inventory. Pickup trucks are especially important to have large inventories because they come in such a wide range of configurations dealers need to have large supplies on their lots to have a sufficient variety of choice for pickup truck buyers. Thus, an auto maker like GM that sells a lot of pickup trucks will probably want a little more than 60 days' supply.
It just so happens that in May, GM had a 77-day supply, which is a bit high but not that bad. IIRC it had gotten up to 80 or 90-something at some points last year, which was definitely too high. They've done a good job getting it down:
LINK
Third, notice that their PRESS RELEASE says:
"General Motors Co. dealers delivered 284,694 vehicles in the United States in May, up 13 percent compared to a year ago ..."
Notice that says, "General Motors dealers delivered ..." The only entities dealers deliver to are final customers - retail and fleet sales. Contrast that with the spin Zerohedge implies that their monthly sales constitute autos rolling off the factory floor. It's impossible that is true, because GM exports and imports some cars, so how could monthly production - not all of which goes to US dealers - be considered "dealer deliveries?"
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