Light Truck Sales Lead The Way In The U.S. Automotive Market

DAI: DAIMLER AG logo
DAI
DAIMLER AG

Amid concerns of softer global economic growth, the U.S. automotive market continues to record solid growth led by the sustained high demand for SUVs/Crossovers. The country’s light-duty vehicle market rose 3.8% year-over-year through August, but while car sales have declined by more than 3%, light-truck sales have risen 10.4%. [1]

We have a $46 price estimate for Volkswagen AG, which is above the current market price. The stock has declined 11% in the last month.

See Our Complete Analysis For Volkswagen AG

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

 

Customers are opting for SUVs, which combine the looks of a car and the functionality and power of a utility vehicle, over sedans. SUVs and Crossovers have more capacity, a higher vantage point for drivers, and also carry most of the features that make a passenger car attractive, such as connected car features, comfortable seating, and attractive styling. These vehicles are also considered safer due to their larger size and more power, and also preferred for their off-roading capabilities. What makes SUV sales even more crucial is that there is more focus on U.S. volumes now, with China undergoing a slowdown, and a continually strengthening U.S. dollar.

We have a $91 price estimate for Daimler AG, which is above the current market price. The stock has declined 11% in the last month.

See Our Complete Analysis For Daimler AG

 

There are no visible signs of the U.S. economy slowing down, with a solid 3.7% GDP growth in Q2, low jobless rates, and growth across the construction and housing sectors. There seems to have been no significant impact of the softer global economy conditions, China slowdown, and the sudden stock market fall, on the U.S. economy, as yet. This is good news for automakers, especially for foreign automakers, who will realize positive currency translations.

Let’s look at the sales trends for foreign automakers– Volkswagen and Daimler, in the country, in the wake of the announcement of August sales figures.

Volkswagen 

Volkswagen AG (OTCMKTS:VLKAY) is the world’s highest-selling automaker so far this year, in terms of volume sales, but the German giant continues to face problems in the world’s top two automotive markets. But while the group holds the leading position in China, it lags competition in the U.S. The Volkswagen Passenger Cars division (including cars, light commercial vehicles, and SEAT), which forms approximately 18% of the company’s valuation, and was a massive 46% contributor to the net revenues last year, has sold 2.8% fewer vehicles in the U.S. through August, including a large 8% fall in volumes last month alone. The problem for Volkswagen remains the low number of SUV/Crossover options in the country. Volkswagen is now working on a lineup of five new SUVs, aimed directly at the U.S. market, in a bid to turn its fortunes around in the country — the biggest SUV market in the world. However, one would think that with so much growth potential on offer in the SUV segment in the U.S., Volkswagen’s game has not been on point so far.

What is working for Volkswagen is that its luxury divisions continue to perform well in the U.S., again, led by large SUV demand. Audi’s sales have risen 12% through August in the U.S., on a massive 35% rise in light-truck sales. This growth is, in fact, more than that of BMW and Mercedes, although the latter two brands comfortably outsell Audi in the country. Porsche sales have also increased by approximately 10% in the country. The luxury brands, although forming a small percentage of net volumes, contribute significantly to the net operating profits, by virtue of their high price points. High proportionate sales of the premium brands bodes well for Volkswagen, but the namesake passenger car brand, which still forms more than 55% of the group’s U.S. volumes, and has less than 3% operating margins, is weighing down the group’s profitability.

Mercedes

Daimler AG‘s Mercedes-Benz has seen U.S. volumes rise 7.8% through August, owing to the large 18% rise in light-truck volumes. Premium SUVs still form only 1.3% of the U.S. vehicle market, and with a growing demand for luxury vehicles, especially crossovers, this segment could continue to expand. Mercedes renamed its M-Class model lineup the GLE-Class last year, and the GLE Coupe, combining the looks of an SUV and a luxury coupe, went into production at Mercedes’ Tuscaloosa plant. With the GLE lineup and several all-new or revamped models hitting the U.S. market this year, Mercedes is poised to gain from the large SUV demand, going forward.

Mercedes and BMW have for years now fought for the top spot in the U.S. in terms of volume sales, and the former has sold more vehicles in the country year-to-date, outpacing the latter’s 5.8% volume growth through August.

There is uncertainty in the U.S. regarding the interest rate hikes, and the possible contagion effect of the China slowdown on the world’s largest economy, but with no visible signs of a slowdown, the continual high demand for SUVs in the U.S., means that this remains a highly focused segment for automakers around the world.

See the links below for more information and analysis:

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. U.S. vehicle sales data []