Bright projections for automakers from the car-shopping website Edmunds.com should have boosted shares of car companies on Monday, but instead, the majority of components in the subsector fell sharply alongside the broader market. Edmunds forecast that auto companies would post sales of a seasonally adjusted annual rate of 13.4 million vehicles, significantly beyond the 12.2 million annual rate a year ago, and beyond the impressive 13.1 million for September.
Sales of cars have been climbing for the last several months and the predictions for October mark the highest annual rate since August of 2009, the final month of the federally run “Cash for Clunkers” program. The rising numbers bode well for the state of the economy, but renewed questions surrounding the euro debt crisis, specifically when and how the measures would be implemented weighed on consumer stocks regardless.
U.S. auto makers General Motors Co. (GM), Ford Motor Co. (F) are each anticipated to report year-over-year sales growth for the month October on Tuesday, but shares of both companies declined over two percent with the broader market.
Compounding economic fears was a statement from Edmunds.com senior analyst Jessica Caldwell.
“October’s sales numbers are certainly a bright spot in a sluggish economy, but it would be a mistake to believe that this momentum is the ‘new normal,’ she said “Unless early holiday incentives inspire droves of buyers in November, we don’t expect sales to increase on the same trajectory as we have seen in the last two months.”
Average-per-vehicle incentives for buying have been slimmer, down 12 percent from September, with Honda (HMC) and Toyota cutting back the most. Ford reduced incentives the least among its competitors, a factor that has the potential to boost October sales and pare some of Monday’s weakness after earnings.
Ford’s minor losses for the day seem both reversible and minimal compared to the tumble endured by Honda (HMC) during the session. The company withdrew its annual earnings guidance on the basis that the tenuous currency markets and the flooding in Thailand have caused uncertainty regarding the company’s future performance. Honda has suffered the greatest damage in terms of supply disruptions caused by the earthquake and floods this year, even among other Japanese auto manufacturers. Most recently, the flooding in Thailand damaged one of Honda’s factories in the region. Shares of the company fell over 8 percent in trading Monday, bringing them down 24 percent year-to-date.
Honda announced that North American production would only be around 50 percent of its original intentions from November 2 through November 10 as parts are limited as a result of the floods in Thailand. Additionally, the sale date of the 2012 Honda CR-V cross over will be delayed, potentially having a negative impact on sales around the holidays.
The company’s CFO described the current situation as a “really tough spot.”