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Earnings Preview: GM, F, TSLA May Tell Interesting Story of 2016 Auto Sales

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January 10, 2017
Auto market earnings 2016 overview.
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New car sales roared to another peak in 2016, according to industry results reported earlier this month. What investors might find out when the likes of Ford (F), General Motors (GM) and Tesla (TSLA) turn in their quarterly and full-year earnings results is the price manufacturers may have paid in incentives to drive those autos off sales lots.

A record 17.55 million new vehicles were sold in the U.S. last year, in what the industry referred to as a “photo finish” that eclipsed the 17.47 million sold in 2015. It was the seventh straight year of rising auto sales, according to research group J.D. Power.

An unexpected surge in December sales, particularly in light pickup and sports utility vehicles (SUVs), appeared to help push the annual sales number into fresh territory. What’s more, according to Kelley Blue Book, average transaction prices overall climbed  0.3% on a month-to-month basis and 1.5% on a year-over-year basis, reaching $35,309 in December. The move toward pickups and SUVs appears to be driven by lower prices at the gasoline pumps, according to analysts.

While December sales are typically hot, analysts note that this year’s monthly pace was among the most robust performances in the industry’s history, fueled by a tankful of incentives. Discounts averaging about $3,542 per vehicle were equivalent to about a 10% markdown from sticker prices, according to J.D. Power.

“Even though transaction prices are at an all-time high, incentives have grown similarly to counterbalance the increased prices,” Tim Fleming, analyst for Kelley Blue Book, said in a press release. “Higher average transaction prices are reflective of the rapid shift in consumer demand away from cars, and into trucks and utility vehicles, which are more expensive.

“Should the sales mix of cars to SUVs reach a stable point in the near future, actual transaction-price growth could match or fall just short of inflation,” he added.

For December, GM sales charted a 10% increase while F’s edged up 0.3%, according to J.D. Power. TSLA said earlier this month that its Q4 sales were higher by 27% than last year’s, but analysts noted that the full-year sales of 76,230 cars and SUVs fell short of TSLA’s stated 80,000 sales goal.

Investors may soon get a better grasp on how automakers see 2017 shaking out and what the industry might be expecting with a new administration calling the shots in Washington, D.C. Major changes being talked about in federal regulatory and trade policies appear likely to impact how the industry operates going forward. So far, some automakers reportedly have readjusted their plans on where to build certain vehicles amid warnings of higher import and export taxes.

“One of the problems with predicting 2017 is it is the year of unknowns,” Michelle Krebs, an analyst with the car-shopping site Autotrader, told the New York Times. “We are hearing a lot of different things about border tariffs and regulatory policies, but we don’t know what the whole picture looks like.”

FIGURE 1: AUTOMAKERS TRAIL.

Shares of some of the biggest car makers tend to ebb and flow in their own sea when compared with the S&P 500. GM’s shares are represented by the purple line, F’s by the green one and TSLA’s are in pink. Data source: the TD Ameritrade thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.