New Car Sales Were Dreadful. Why Car Stocks Win Either Way.

 New Car Sales Were Dreadful. Why Car Stocks Win Either Way.

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August light-vehicles sales missed estimates—badly. The number is a surprise, but the reasons behind it aren’t.

U.S. car sales–expressed as an annualized selling rate–came in at 13.1 million for August, far below estimates for 14.5 million units. The number comes out from industry data providers late on the first or second day of each month, after all the individual companies have released numbers.

Car stocks aren’t reacting though.

General Motors

(ticker: GM) stock was unchanged in Thursday premarket trading, as was

Ford Motor

(F) stock.

The stocks didn’t do anything because the reasons for the weak sales are widely known: high prices and no inventory. Both are a function of the global semiconductor shortage that is constraining global auto production. But even when the shortage ends, other factors likely can help boost car stocks instead.

The shortage has been with investors—and the industry—all year. It was supposed to be getting better in the second half of 2021, but car companies, including

Tesla

(TSLA), are taking plant downtime while they wait for parts.

U.S. dealers have about 23 days of inventory on lots. That’s down by about 27 days year over year,  according to Deutsche Bank analyst Emmanuel Rosner, and that’s a big reason prices are up. “The positive pricing and incentive trends are a sign that underlying demand remains strong,” Benchmark analyst Mike Ward tells Barron’s. Strong pricing is a positive and a big reason that both Ford and GM reported better-than-expected second-quarter numbers.


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Investors shouldn’t forget the price paid at the dealership goes to the dealer, and the price paid by the dealer is what GM and Ford receive. A lack of purchase incentives and discounts, however, is one of the factors boosting realized pricing for car makers.

But high pricing has limits. Morgan Stanley analyst Adam Jonas raised the possibility of a buyers’ strike due to pricing. “Very low inventory is [clearly] a factor,” wrote Jonas in a Thursday report. “But what about nosebleed-above MSRP pricing for….vehicles.”

MSRP stands for manufacturer’s suggested retail price. Customers are having to pay more than that to get a car. Jonas believes customers might be waiting until prices fall.

A buyers’ strike would mean there is some pent-up demand for new cars in the U.S., which also can benefit car stocks. Eventually when production normalizes, prices can come down and volume can help boost profits.

New car sales annualized at about 17 million in the first half of 2021. That’s down to about 14 million in the second half so far. That 3 million car gap might not be lost—those purchases might just be pushed into 2022 and 2023.

Car stocks also aren’t reacting to the Wednesday figure because the lingering semiconductor shortage is a long-known issue. GM stock has declined 14% over the past month. Ford shares fell 6%. The

S&P 500

and

Dow Jones Industrial Average

rose 3% and 1%, respectively.

GM seems to have kicked off the downward move. The company gave weak guidance for second-half 2021 earnings when reporting its second-quarter numbers. Once again, a lack of chips is a big reason.

Write to Al Root at allen.root@dowjones.com

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