US Auto Sales Boom: Can The Recovery Continue?

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US Auto Sales Boom: Can The Recovery Continue?

The 2008 financial crisis was probably the best thing that ever happened to the US auto industry. Motor city is booming. US auto sales are as high in many categories as they were in 2007, and Barack Obama’s claim that his bailout saved the industry helped guide him to victory. The domestic auto industry is certainly one of the fastest large sectors of the economy to recover to pre-crisis levels.

The auto industry has had its share of luck, and help, in recovering to this level. The auto bailout, initiated by the Obama White House, is usually given a lot of credit for the industry’s recovery, but it was not the only factor at play. Between 2009 and 2010, Toyota sales fell on a now infamous recall of some of its vehicles. The company had a serious black mark filed against its reputation, something US automakers have managed to benefit from.

Toyota still leads the US automarket, however, and was responsible for a large chunk of the growth which led US auto sales to their highest levels in five years. With the industry hitting a high, it is the right time to question whether or not the recovery is sustainable.

Today, Ford Motor Company (NYSE:F) announced it was going to double its dividend for the first quarter of 2013. The company will pay 10 cents out for each share of common and class B stock, according to an announcement made today. In each quarter of 2012, the company paid just 5 cents per share.

General Motors Company (NYSE:GM) announced today that it was in the process of hiring up to 1000 new staff to work in its new Information Technology centre in Atalanta Georgia. Both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) assume their growth will continue, their confidence may be a little overblown.

A Bank of America Corp (NYSE:BAC) report on the auto industry, published today, January 10, is predicting good things for the industry. The report sees North American car sales as the most important factor in the Detroit firms’ future, and predicts that 2013 could be another landmark year.

In essence, the report suggests that the only thing that could cause real regression in auto sales in 2013 would be a global slow down, led by European problems. Such an event is never beyond the bounds of possibility, but it is hardly the only worry facing companies like General Motors Company (NYSE:GM).

The Bank of America Corp (NYSE:BAC) report suggests that US auto sales will hit another high in 2018, with sales expected to hit around 18 million light vehicles that year. This implies a sales growth, across the industry, of 20% in six years – not exceptional by any means.

There are problems aside from the usual European crisis worries. Competition from east Asian manufacturers, who offer lower priced vehicles, could increase, new manufacturers, buoyed by success in India and China, could enter the North Americn market, or there could be a significant change in the structure of demand in the industry.

Cars don’t change all that much, but that doesn’t mean they can’t. What got Detroit into its mess in 2008 was not just the financial crisis, but a lack of innovation. The risk of US auto firms slipping back into that rut is ever present. It should not be ruled out.

Presuming the world economy does continue to recover, and the US auto makers don’t make any big mistakes, the industry should continue to grow. One of the most interesting related stocks, according to Bank of America Corp (NYSE:BAC) is Ford Motor Company (NYSE:F). The bank has put a price target of $20 on the company. Ford stock is trading at $13.86 at the time of writing.

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