Unconventional Wisdom- It really was just a pause ::Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Unconventional Wisdom
It really was just a pause
Event
 US auto sales improved in September to the highest level since April.
Impact
 One of the key issues over recent months was whether the decline in US auto
sales towards the middle of 2011 was only a pause or something more
serious.
 There is now growing evidence from both supply and demand indicators that
support the idea that the decline was temporary. This is despite the troubles in
financial markets and the parlous state of US consumer confidence.
 It seems that the fundamentals which support US auto demand are working.
This is one reason why the US economy is in better shape than many other
large developed economies.
Analysis
 An annualised sales rate of 13.1 million autos in the US in September was still
well below the 15-16 million sales rate that prevailed before the financial
crisis. But it was the highest rate since April and that month marked the peak
of a significant rise from the depths of the recession.
 From a trough of just under 10 million annualised in late 2008, US auto sales
climbed steadily. The only brief interruptions were swings during the cash for
clunkers program in 2009. Otherwise the rising trend was quite smooth until
April this year.
 The only noticeable weakness was in 2Q11. Although it was suspected that
the disruption to supply from the Japanese earthquake in March was the main
reason for this weakness, there were also claims that the downturn in auto
sales was the start of a sustained decline.
 These claims should now be ignored. After falling to an annualised sales rate
of 11.5 million in June, the sales rate over the following three months was
12.2 million, 12.1 million and 13.1 million. Despite the turmoil in financial
markets and the very low level of consumer confidence, US consumers
showed stronger demand for an expensive, discretionary form of spending in
3Q11.
 Supply data confirmed that the slowdown in 2Q was just a pause. Industrial
production figures show that motor vehicle and parts production rose by 4.5%
in July and 1.7% in August (non-annualised). Obviously this was a sharp
rebound after a drop of 15.8% in Q2.
 Not all of the supply chain has been restored. Both Toyota and Honda have
indicated that lack of inventories is still hampering sales. This is apparent in
the sales figures for September with both companies reporting sales that were
still well below the April level. As the supply shortages ease over coming
months it could mean that US auto sales improve even further.