US auto sales increased unexpectedly in June, leading analysts to project 2012 US sales of 14 million units. Naturally, industry sales volumes are important to auto manufacturers, who rely on economies of scale to decrease production costs and increase their margins. They also serve as an important barometer for consumer sentiment. Weak economic growth, Europe’s debt crisis and persistently high levels of employment could make June’s unexpected sales gain the anomaly for 2012.
While a larger car market provides opportunities for manufacturers to increase sales, its how each company achieves those sales gains that will prove important to investors. For example, General Motors, which for many years prized market share above profitability, wants to retain its status as largest worldwide manufacturer, which could lead to repeating the strategy of “moving metal” through higher incentive spending. May 2012 data suggests that this is a persistent problem for Chevy, which offered the highest average discount in June; amounting to 10.7% according to Edmunds.com.
Who were the big winners in June? Not surprisingly, Japanese companies Toyota and Honda saw the largest sales gains for the month. Much of this has been attributed to recovering inventories following last year’s constrained supply. Perhaps the most interesting aspect of June’s sales data is that almost everyone benefitted. Jaguar and Mitsubishi were the only brands with sales declines.
BMW sales were almost flat. Sales of the company’s volume model, the 3-Series, were down 26% compared to June 2011. BMW will depend on broader availability of the new 3-Series, coupled with a more attractive model-mix to halt these sales declines.
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