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U.S. Car Sales Defy Economy And Rally

Strength To Continue In Fourth Quarter, Says S&P’s Schulz

The media is full of gloom and doom about the U.S. economy being on the verge of a double-dip recession, but American car buyers are not listening, for the time being at least.

A rush of nifty new models persuaded buyers to take the plunge, including a resurgence of new Japanese cars emerging after the earthquake, tsunami and power disruptions, plus the fact that sales have slumped for so long that pent-up demand beats economic gloom for some.

A surge in retail sales pushed the annual selling rate to 13.1 million in September, the highest for five months, and this is expected to continue for a while yet.

“Despite ongoing uncertainty regarding the U.S. economy, auto sales painted an optimistic picture (in September). Our estimates incorporate seasonally strong sales in the fourth quarter and the fact that Japanese automakers have largely resolved their  production issues,” said Standard and Poors analyst Robert Schulz.

“The rising average age of vehicles should support some of the pent-up demand currently countered by economic and financial uncertainty,” Schulz.

“We are surprised that sales have been so resilient in the face of negative economic news,” said UBS analyst Colin Langan.

Deutsche Bank though is sticking with its forecast for the year of 12.65 million and 13.0 million for 2012.

Bikini ping-pong
Despite this good news on sales, car manufacturer’s stock prices are in reverse, prompting Morgan Stanley analyst to claim that selling shares in car companies was like selling bikinis in Detroit in January. Jonas pointed out that many auto companies showed genuinely strong fundamentals, but investors were spooked by the overall economic woe. If you don’t like the bikini analogy, Jonas has another one.

“Trading auto stocks in this macro environment is like playing ping-pong in a hurricane,” said Jonas.

Neil Winton – October 20, 2011

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