Last month, when we reported auto sales data, we noted that this month would be all about replacement demand from Hurricane Harvey and thus largely irrelavant. Fast forward 30 days and that appears to be exactly what has happened as annualized auto sales for the month of September suddenly surged to a 30-year high of 18.5mm units, up 15.2% sequentially from a 16.0mm run-rate last month.
That is, of course, unless you believe CNBC's Phil LeBeau who took to the airwaves earlier today to argue that a substantial portion of the sudden surge in auto sales was not necessarily attributable to the fact that a couple hundred thousand cars were destroyed in last month's hurricanes but rather just a reflection of an abrupt rebound in consumer demand after months of weak data...
...once you're done with the laughing fit we can continue to review this month's auto data...
Not surprisingly, almost every OEM, with the exception of Fiat Chrysler, managed to post a significant YoY increase in sales courtesy of Hurricane Harvey. The only surprising takeaway was just how wrong wall street was in their estimates for the quarter.
Meanwhile, per the charts below from Stone McCarthy, the transition from cars to trucks continued during September with car sales dropping 2.8% YoY versus and 8.1% increase in truck sales.
All of which likely contributed to Ford's announcement after the close today suggesting, among other things, a shift in future capital allocation to increased production of SUVs and trucks away from cars...which should be complete right about the same time that oil prices spike back to $100 per barrel rendering those SUVs/Trucks completely unaffordable again. Here are the highlights from Ford's press release:
Accelerating the introduction of connected, smart vehicles and services customers want and value. By 2019, 100 percent of Ford’s new U.S. vehicles will be built with connectivity. The company has similarly aggressive plans for China and other markets, as 90 percent of Ford’s new global vehicles will feature connectivity by 2020.
Rapidly improving fitness to lower costs, release capital and finance growth. Ford is attacking costs, reducing automotive cost growth by 50 percent through 2022. As part of this, the company is targeting $10 billion in incremental material cost reductions. The team also is reducing engineering costs by $4 billion from planned levels over the next five years by increasing use of common parts across its full line of vehicles, reducing order complexity and building fewer prototypes.
Allocating capital where Ford can win the future. This starts with the company reallocating $7 billion of capital from cars to SUVs and trucks, including the Ranger and EcoSport in North America and the all-new Bronco globally. Ford also has plans to build the next-generation Focus for North America in China, saving capital investment and ongoing costs. Further, Ford is reducing internal combustion engine capital expenditures by one-third and redeploying that capital into electrification – on top of the previously announced $4.5 billion investment.
Of course, with this non-recurring, one-time surge in demand helping to offset the industry's pesky inventory crisis (per table below GM was able to reduce inventory MoM by over 70,000 units), the question now becomes whether OEMs will maintain some discipline and restrict production to reflect a normalized SAAR environment or if they'll just flood dealer lots all over again...we have a guess.
Of course, while today's results were largely just noise, shareholders still loved the headlines...