Auto Stocks Down After Sluggish Sales

Shares of Ford stock plummeted today by roughly 4 percent to hit a 21-month low following a 7.1 percent drop in sales from April. Indeed, it appears that demand for Ford passenger vehicles are softening, but the big surprise came in consumer disinterest in pickup trucks. And its not only Ford: shares of General Motors fell by 2.7 percent following a near 6 percent slowdown in sales; Toyota has reported 4.4 percent slower sales, particularly with the luxury Lexus brand that dropped a whopping 11.1 percent; Fiat Chrysler is also slowing with a 7 percent drop in sales and shares falling accordingly, by 5 percent.

“This has been ongoing since Q4 of last year, where the upward momentum just petered out,” comments Jefferies chief financial economist Ward McCarthy.

Now, none of this is too much a surprise. Industry analysts had expected sales would be somewhat flat in April after the numbers in March came back somewhat disappointing. Still, the industry expects that sales will recover, off the heals of the 18 million units peak set last year. The forecast for this year, then, is a range of 17 to 17.5 million annually.

Economists are blaming some of these softer numbers on tighter credit after a surge in in sales last year.
McCarthy adds: “It does seem like credit has tightened up somewhat, and of course you had both Easter and Passover in April, which is unusual. That could have been a factor. The bottom line is the upward trend in light vehicle sales peaked. Going forward light vehicle sales are not likely to contribute to trend growth. They’ll be a factor in month-to-month changes in retail sales.”

On the other hand, Wilmington Trust chief economist, Luke Tilley, advises that it is still a little early to worry about the second quarter numbers. Still, car sales are expected to be a big part of it. He comments, “It deserves a yellow light in the sense we’re watching it closely. At the same time, we think the auto market is something that has its own internal dynamics and isn’t something indicative of consumer spending.”

Finally, in response, GM chief economist Mustafa Mohatarem issued a statement: “When you look at the broader economy, including a strong job market, rising wages, low inflation and low interest rates, and couple them to low fuel prices and strong consumer confidence, you have everything you need for auto sales to weather headwinds and remain at or near historic highs.”