Here’s How Car Sales Are Revving Up the U.S. Economy
Rapidly improving car sales may soon spill over into production, profits, and more jobs for Americans, according to a Bloomberg News report. The world’s largest automaker, General Motors (NYSE:GM), boosted its 2012 industry sales forecast last year, while Ford Motors (NYSE:F) will add factory shifts and Chrysler Group is increasing hiring as demand rises.
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Autos have had their strongest performance this year since early 2008, with purchases exceeding a 14 million annual rate in each month of 2012 so far. According to government data, motor-vehicle output contributed half of the first quarter’s 2.2 percent economic growth in the U.S.
The resurgence from assembly lines and dealerships to steelmakers, freight line, and loan providers signals that the U.S. is headed for lasting, robust growth. The revival in sales of cars and light-duty trucks can be attributed to rising employment, an improvement in consumer confidence, and a thaw in lending. It is estimated that every dollar spent in the industry triggers an additional $2.02 of output in the economy, according to Bloomberg News.
Even though the need to replace aging vehicles and households’ easier access to loans has helped boost earnings for auto manufacturers, investors are distracted by concerns over Europe’s debt crisis and its impact on the U.S. Though the U.S. auto industry is quickly recovering its past strength, investors have grown more wary of risk. Stocks are still underperforming. The auto gauge has fallen 31 percent in the past year. The Russell 3000 Automobiles Index, comprised of GM, Ford, and electric-car maker Tesla Motors (NASDAQ:TSLA) is up 1.5 percent this year, compared with an 8 percent rise in the Russell 3000 Index.
In 2009, GM and Chrysler were forced into bankruptcy as demand wavered during the 18-month recession that began in December 2007, causing production cuts and mass layoffs. The industry’s share of gross domestic product dropped to 1.8 percent in 2009, but reached 2.8 percent in the most recent quarter, almost matching the 2.9 percent share of the U.S. economy it held in 2007, before the recession.
Last year, GM regained its rank as global industry sales leader after losing its crown to Toyota (NYSE:TM) in 2009. Meanwhile, Chrysler plans to increase output at its sport-utility-vehicle plant by hiring 1,100 workers in November instead of early 2013. Hyundai and Ford will also add shifts at U.S. factories this year, with Ford shutting down 13 facilities for one week instead of two during its annual summer shutdown.
Better prices for new models and fewer discounts helped bolster GM’s first-quarter earnings. According to researcher Autodata, GM sales increased as the company spent 11 percent less per vehicle on incentives. GM’s Chief Financial Officer Dan Ammann said that this is a solid quarter for GM and growth is heading in the right direction. He predicted that second- and third-quarter results for North America should be similar to the first three months of 2012.
Cars and light-duty trucks sold at a 14.38 million seasonally adjusted annual rate in April, after a 14.32 million rate n March. GM, Toyota, and Ford have raised projections for 2012 U.S. industry sales. Analysts surveyed by Bloomberg are predicting a 14.3 million total for the year, up from a January forecast of 13.6 million. Analysts assert that auto sales are leading the way in consumer spending. Companies are also expected to improve further as Americans purchase big-ticket items and factories fill orders.
Many various companies and industries benefit from the revival in demand of automobiles. Apex Tool & Manufacturing — a joint venture between Cooper Industries (NYSE:CBE) and Danaher (NYSE:DHR) — is benefiting from the revival in car sales. The company is a maker of tooling, fixtures, and gauges to manufacture glass and other products. Apex Tool & Manufacturing has seen an increase in auto-related sales since the last quarter of 2011. In addition, rising car sales are generating business for railroads. Data released from companies, including Union Pacific (NYSE:UNP) and Norfold Southern (NYSE:NSC) show motor-vehicle shipments for the final week of March at the highest level since June 2008.
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