| 2016-12-01 14:30:30|
GM, F… 14:30 12/01 12/01/16
Deutsche challenges doubts on U.S. car market as Trump could be 'game changer'
Offering a challenge to recent doubts about whether a peaking U.S. car market can sustain current levels, research firm Deutsche Bank contended Thursday that pro-growth plans from the Trump administration could be a "game changer" for auto investors. The bullish call came as the major U.S. carmakers gave upbeat monthly reports Thursday, with both General Motors (GM) and Ford (F) reporting sharp jumps in November sales. AUTOMAKERS REPORT NOVEMBER SALES: General Motors said U.S. retail unit sales rose 8% to 197,609 units in November, while total domestic sales jumped over 10% to 252,644 vehicles. Among its individual brands, Chevrolet retail sales rose 5%, Buick rose 22%, GMC rose 9%, and Cadillac rose 17%. Meanwhile, Ford (F) reported domestic retail sales rose 10% to 154,114 units while total sales edged up 5% to 197,574 vehicles. F-Series total sales increased 11%, the truck line's best November sales since 2001. F-Series retail sales were up 14%. Ford brand SUV sales increased 20%, including a 75% surge in Expedition sales. Fiat Chrysler (FCAU) said U.S. retail sales fell 2% to 126,780 units while total sales fell 14% to 160,827 vehicles. Ram Truck brand sales were up 12%. Jeep brand sales were down 12%, though the Renegade small SUV posted a 30% sales gain. FIAT brand sales fell 15%, Dodge brand was down 21%, and Chrysler declined 47%. DEUTSCHE SAYS TRUMP POSSIBLE GAME-CHANGER: Deutsche Bank's Rod Lache says his meetings with Washington D.C. contacts reveal "broad conviction" that numerous pro-growth changes are likely, and the firm's in-house economists believe those could drive "significant" acceleration in GDP. For investors in automotive stocks, Lache says the growth spurt could be a game changer; cyclicality is the "single biggest risk" when jumping into auto stocks, and the potential for near-term cyclical downside has now "diminished," he writes. Among specific growth actions by Washington, tax reform and fiscal/infrastructure stimulus are "clear priorities," and key regulatory drivers benefiting auto suppliers -- fuel efficiency and active safety mandates -- will "likely remain intact." Investor fears about the President-elect's rhetoric on trade protectionism "are overblown," with Deutsche's impression being that the incoming administration "appears to be looking at tweaks and fine-tuning" rather than significant tariff changes. Arguing that the improved outlook particularly benefits companies exposed to pickups, commercial trucks, and construction machinery, Lache upgrades American Axle (AXL) and Dana (DAN) to Buy. Other beneficiaries include CarMax (KMX), Goodyear (GT), Magna (MGA) and Delphi (DLPH), he says. On the major automakers themselves, Lache believes that Street expectations "may have become overly cautious," with GM's forecast of a 2017 profit boost now "somewhat more plausible." That said, the analyst remains neutral on the stocks, citing "regulatory cost pressure, used vehicle pricing, tightening credit, and potential for significantly increased competition in key profit centers." GM ECONOMIST BULLISH ON 2017: Commenting in the company's November sales report, GM chief economist Mustafa Mohatarem said, "All economic indicators show significantly improved optimism about the U.S. economy including consumer and business sentiment, which continue to drive a very healthy U.S. auto industry. We believe the U.S. auto industry is well-positioned for sales to continue at or near record levels into 2017." Today's news follows recent commentary from GM CEO Mary Barra, who said in a November interview with Automotive News that "we do believe that we're at a plateau. So to be able to stay at a 17M, or above -- anywhere where the first two digits are 17 is a good market." Meanwhile, the National Automobile Dealers Association has forecast 17.1M new car sales in 2017, commenting that "pent up demand is effectively spent," while Japan's Nissan (NSANY) remarked in early November that "the U.S. market, on an annualized basis, is at the level of 18M units, [reaching] a peak. We don't see a potential for further growth." PRICE ACTION: Shares of American Axle and Dana are up 4.4% and 3% in afternoon trading. GM and Ford have risen 5% and 4%, respectively, on the back of their sales reports, while Fiat Chrysler shares trading in New York are up about 1%. GM F FCAU AXL DAN KMX GT MGA DLPH NSANY