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Extra Selling Day, Hurricane Recovery Boost Auto Sales

David Whiston, CFA, CPA, CFE

David Whiston: Automakers this week reported excellent September sales. They were up 6.3%, and there were a couple things going on that really helped. One, there was an extra selling day, so backing off that extra selling day, it was roughly a 2.2% increase, but also there's a rather significant bump from hurricane recovery. It's hard to say exactly how much, but the seasonally adjusted annually selling rate or SAAR came in at 18.58 million, which is absolutely outstanding. By far the best of the year, and in fact it was the best sense about 20.6 million in July of 2005, when the Detroit three were having a price war over employee pricing for consumers.

It's good and bad. I think October is still going to be a very good month, because there's a lot more hurricane recovery to come in Texas and Florida. Hopefully that won't be delayed by any more storms, but at the same time, you've got some more unfavorable things in that pricing went down about 1%. Incentives per unit were up about 1.5%, and incentives as a percentage of average transaction prices were up about 30 basis points to 11.5%. You'd like to see that number or that ratio more in the high single digit low 10% range. But it is the top of the cycle so, once we get past the hurricane recovery, I think we'll go back to how things were, which was a little bit soft, but certainly not bad. For the next few months, I think it's going to be quite healthy and in December looking out ahead, that's always a good month for luxury automakers too.

No reasons to be panicking, but at the same time, no reasons to think we're going back to where we were in the past few years. Certainly the SAAR of 18.58 million, that's more of an outlier. 

Given the current sales environment, we still like GM. We've actually seen the stock rally quite a bit recently, which is great to see. I still have a fair value estimate of $51. The market's waking a bit more to the fact that they're perhaps not going to be left out of the cold in the autonomous vehicle and right hailing disruption that's coming and it can't all go to Silicon Valley and Tesla at the same time. At the same time they're not done improving themselves, either, and they're gobbling up a ton of their stock, 5 billion alone this year.