But Morgan Stanley Worries That Sales Being Pulled Forward.
U.S. car sales go from strength to strength with health and prosperity forecast to continue through 2015, but some investors are worried that the exuberance may be getting out of control.
U.S. light vehicle sales rose 9.4 per cent in August to an annual rate of 17.5 million, and Standard & Poors pointed out that this is the highest level since January 2006.
“The underlying fundamentals of the U.S. economy, such as steady improvement in manufacturing activity, unemployment levels, and consumer sentiment support our baseline forecast for GDP growth of 2.1 per cent in 2014 and three per cent in 2015 because we expect private-sector strength to offset continued government austerity,” S&P said.
(That estimate was made before the latest OECD forecast, which cut its projection for U.S. growth to 2.1 percent this year and 3.1 percent in 2015. In May the OECD forecast U.S. growth of 2.6 percent this year and 3.5 percent next year.)
“We believe that consumers will continue to replace ageing vehicles with newer better models. The combination of relatively low interest rates and some cash rebates for vehicle purchases should also boost sales and, along with the slowly recovering housing market, lend support to steady light-vehicle sales for the next 12-18 months,” S&P said.
International Strategy and Investment (ISI) said the market looks set for continued expansion.
“We believe it is too early to get excessively concerned (about prospects) and we do not have sufficient data to do so,” ISI said, commenting on news that used vehicle prices were starting to fall.
“We believe concerns on the U.S. market are presently overplayed,” it said.
Time to sell
Oh no they’re not, says investment bank Morgan Stanley, saying now is the time to sell shares in companies exposed to the U.S. market, even as new highs are being set.
“We see many signs that (manufacturers) are pulling forward U.S. demand from the future. The U.S. industry has experienced a 70 per cent boost in volume in just five years. In our view, a release of pent-up demand has accounted for most of the rebound. Going forward, we believe capacity, currency (the yen) and credit will drive a grind to (an annual rate of) 18 million, that, if not completely profitless may at least borrow too liberally from the future, compromising the sector multiple (valuation). This translates to a poor risk-reward time for U.S. autos,” Morgan Stanley said.
The Kiplinger Letter isn’t concerned with corporate stock prices, just the condition of the U.S. industry, and it sees total sales of 16.4 million in 2014, with 2015 shaping up as another banner year, and although they won’t grow much in 2015, they will level off at that high plateau.
“That’ll keep automakers busy and profitable, now that most have ditched the excess capacity that plagued the industry before the Great Recession, Kiplinger said.
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