Watch me discuss General Motors’s earnings and the outlook for the auto sector with InvestorPlace’s Jeff Reeves.
Auto sales have enjoyed a nice bounce in 2013, with sales the strongest they’ve been in six years, but is it sustainable?
I argue that much of the sales surge is “catch up” buying that was postponed during the financial crisis. The average age of cars on American roads has been stretched out to 11 years. At some point, old vehicles have to be replaced, and that is what we are seeing.
Longer term, the picture for mass-market autos is not particularly good. Quality improvements have stretched out the useful life of the average car, which means longer time between purchases. And Echo Boomer (a.k.a. Generation Y) consumers are not embracing auto ownership to the same extent as past generations. Modern communications and the internet have made a lot of routine driving unnecessary, and America is re-urbanizing–which means more public transportation and less driving.
If there is a bright spot, it would be the luxury market, which is less affected by economic worries, enjoys higher profit margins, and has great exposure to emerging markets.
Stocks discussed in this video: $GM, $F, $DDAIF
Related video: Are Automakers a Buy in 2013?
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