Morningstar

Detroit Three Positioned for Harvey Bounce

August auto sales improved versus July.

Securities In This Article
Ford Motor Co
(F)
General Motors Co
(GM)

Automakers reported U.S. August auto sales that looked slightly better than July despite Hurricane Harvey’s impact at the end of August in Houston. Total sales declined year over year by 1.8%, better than July’s decline of 6.9%, but we calculate a 5.5% decline when adjusting for one extra selling day in August 2017 versus August 2016. The seasonally adjusted annualized selling rate came in at 16.13 million compared with 16.97 million in August 2016. Exact losses from Harvey are not known yet, but we have seen estimates between 200,000 and 1 million vehicles. We see supply shocks having temporary impacts on demand. After a couple months for residents to assess damage and in some cases receive an insurance check, we think the industry will see a surge in sales.

We see the Detroit Three especially well positioned for a Harvey bounce because Texas is by far the largest state for full-size pick-up truck sales often at around 15% of the segment. The Detroit Three last year had about 94% of the full-size pick-up market and 84% of the full-size SUV market. According to the National Automobile Dealers Association, Texas constituted 8.9% of new vehicle registrations. We’ve seen Houston’s mix being between 20%-40% of the state’s sales, so it is possible damaged vehicles in Houston equate to about a full year of sales for the area, if not more.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
More from Author

David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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