Executive Summary
U.S. total vehicle sales showed little growth in May, up 0.76%, beating the 15.80M consensus estimate. Consumers have shown resiliency since January 2023, as total vehicle sales have shown stability during such a period. Trucks and SUVs were the best-selling body types. In conclusion, stay invested in the S&P 500 and hold some discretionary stocks in the car sector.
Why You Should Care About This Leading to Coincident Economic Indicator!
Automobile sales are a significant economic indicator of the overall health of the US economy, giving us insights into consumer spending on a major durable good — vehicles — and the manufacturing sector's health. It takes steel sheets for body panels, paint, glass for windshields and lights, copper for electrical wiring, rubber for tires, plastic, fabric, and possibly leather for interiors to make vehicles. Vehicle sales tend to drop into economic recessions and lag or coincide during recoveries. Sometimes, the economy might still be in recession, but car sales start to rise in response to lower Fed interest rates, which translates into lower interest payments on car loans; such consumer behavior helps anticipate economic recoveries. By the end of this investment report, you should know which stocks to buy and avoid.
Chart Analysis
Key Points
U.S. total vehicle sales rose 0.76% in May. Total vehicle sales have stabilized since February '23, averaging 15.51M. YoY, total vehicle sales increased by 5.30%. May sales were 15.90M, 0.10M above the consensus.
May's top 10 best-selling models were Ford F-Series, Chevrolet Silverado, Toyota RAV4, Honda CR-V, Tesla Model Y, Ram Ram Pickup, GMC Sierra, Toyota Camry, Honda Civic, and Chevrolet Equinox.
The average price of the top 10 best-selling models was $32,780, with the Honda Civic and Tesla Model Y having the cheapest and most expensive models, $22,695 and $51,990, respectively. Honda Civic had the highest YoY sales growth, followed by Toyota RAV4, at 48.9% and 24.7%, respectively.
On the other hand, in May, Ram Ram Pickup had the highest YoY decline in growth, at -24.8%, while being the number six best-selling model. In the past twelve months, total vehicle sales bottomed on January 2024 at 14.92M and peaked on December 2023 at 16.12M.
Historical Chart Analysis
History shows that a decline in total vehicle sales alone will not cause a recession; total vehicle sales need to fall as unemployment rises. So far, it does not look like we are in a recession.
Investment Analysis
Overall, vehicle sales were slightly more robust in 1H'24 than in 1H'23, thus highlighting healthier consumers. Consumers are still not as eager to buy vehicles as in 1Q'20, pre-pandemic, and 1Q'21, during the pandemic stimulus checks; however, they are still resilient. Consumers opted for cheaper durable goods in May: the $22,695 Honda Civic and the $26,695 Chevrolet Equinox.
The stability in new vehicle sales means that the US manufacturing sectors reliant on car production are farther from being in trouble. The stability in sales also means that US consumers are not too worried about their current employment situation. Higher interest rates on car loan payments make buyers move away from expensive options, thus reflecting the slow growth for the most expensive car models. In conclusion, stay invested in the S&P 500 and hold, but do not add more discretionary stocks that are part of the car sector
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