Sales in the automotive sector hit new records. How long will it last?

In this new global rally of new cars selling, the North American automotive sector is outperforming and is largely gaining market shares. October was one of the best month in terms of auto sales worldwide, supported by the strong sales in North America and Europe. The extraordinary jump on sales of 14% year on year in the US is a sign of a stronger economy and a growing consumer confidence. The record number of 18.1 Mln sales year on year in the US market only, will very soon be revised in the up side, till the end of the year. There are also very good news regarding the auto production in the US and the new jobs creation in this sector.

The automotive industry is creating new jobs at a 15 year record level. We see demand rising at the same pace of years 2000, which means that it took fifteen years to see the automotive sector performing at these record numbers. The figures clearly indicate that US automakers like Chrysler-Fiat, General Motor and Ford Motor Company are gaining market shares in the domestic US market. Only two days before, the Oracle of Omaha Warren Buffet bought a huge package of General Motor’s shares. This is another strong sign for investors to pour the money in this traditional cyclical sector. The automotive sector normally takes some time to see  sales rebounding, once the economy starts to grow after a long recession.

The car purchasing decision process requires high self confidence in the customer psychology. It is important for the customer to feel safe in case of a job loss, thus it is important the jobless rate to be very low. This process can only happens after the economic recovery is strong enough. As the car fleet is large it is sufficient that a small part of the consumers start to change the old car, to see a strong rebound in the new car sales number. But as we said this can only happen after a strong consolidation of the main economic indicators.

So investors want to be very sure about the consumer confidence, before they start to invest widely in the sector. At this point, what we should try to understand,  is how long can this positive environment last? We know we are in the up side of the economic growth curve but we are not exactly sure at what point. Most likely, this could be the right moment to invest in the sector mainly for another strong reason, the record low interest rates.

For as long as the Fed will keep the rates at these levels, it’s hard to believe in a short term contraction of the GDP growth and of the purchasing power of the average American families. Our expectations are for a sustainable rate of growth of the auto sales in the next two years. The North American market will probably be one of the best performing markets, together with the Eastern European one.

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