Government Shutdown Benefits Auto Sales

PETOSKEY, MICH. (TheStreet) -- Could investors be so lucky as to see a 7% to 10% pullback in the auto industry due to the government shutdown?

I don't just mean a broad-based selloff in the market either. That didn't happen. Overall, everything has held up pretty well. Now we're looking for a selloff in a quality sector that was ultimately tied to the government shutdown.

For all intents and purposes, this government shutdown was a one-time event. If U.S. consumers were holding back on purchasing a new car because of the shutdown, it's not as if anything truly bad happened to automakers like Ford ( F) or General Motors ( GM).

It's not as if there was a large market shift. Many consumers did not face severe, long-term pressure that forced them to curb spending or delay buying big-ticket items.

The trend has no reverse and shouldn't cause a decline in auto sales.

In a recent study conducted by Kelley Blue Book, 18% of prospective car buyers said they would forgo purchasing a new car until there is a resolution.

The article also suggested that if the government only came to a short-term solution, it could further hurt auto sales as many Americans may simply put off buying a new car for another month or two.

In the grand scheme of things, putting off a new car purchase by a few months isn't that big of a deal for most drivers. There is no doubt that if 18% of potential car buyers do take a pass on a new ride, that it will negatively affect automakers.

This would be great! A sales miss for the month of October would seem to be the most likely, but what if sales come in soft for November, too? What if earnings sag as a result or guidance is weak because management is unsure about consumers?

For traders, this may be is bad news. For investors, what could be better? If automotive stocks start to miss sales numbers for a few months and possibly have a less-than-favorable earnings result or conference call, we'll finally get a decent pullback in what has been a remarkable sector this year.

So sales could taper off for a few months at the maximum, before causing pent up demand down the road.

Stocks like Ford, General Motors and Toyota Motors ( TM), which are up 31%, 20% and 39%, respectively, could finally present viable entry points for mid- to long-term investors.

Even BorgWarner ( BWA) or Johnson Controls ( JCI), which are up 42% and 36%, respectively, could have a nice pullback.

John Krafcik, CEO of Hyundai Motor Company recently suggested that October sales figures could fall by as much as 10% due to the ongoing saga in D.C.

He said, "It's that anxiety that keeps customers, potential buyers, on the sidelines 5% to 10% this month, compared to where it was in September. I think a lot of it has to do with this shutdown discussion."

If this is true, we can likely expect the automakers and parts suppliers to get whacked in the coming weeks, presenting great buying opportunities.

Events like these are one-timers. It's got nothing to do with the auto companies or their operations. A bump in the road is all it is.

If indeed the shutdown caused consumers to delay discretionary purchases such as a car, think of what it could do to housing. Or on a smaller note, how it could affect those looking for a new washer and dryer, a big flat-panel TV, or even just a vacation.

It could have more of an effect than we currently realize -- indicative by the market's laissez-faire reaction over the past couple of weeks.

In any regard, if the auto stocks do sell off, sales will pick up where they left off and all shall be well, once again.

At the time of publication, the author was long F.

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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