Plummeting oil and gas prices are adding momentum to an auto industry already bolstered by an improving labor and housing market, and that's good news for U.S.-based automakers that make more large, high-margin vehicles than their rivals.
Lower gas prices, while not necessarily boosting overall demand for vehicles, traditionally tip the mix of purchases in favor of higher-margin trucks and SUVs, says UBS securities analyst Colin Langan. Gas prices which correlate to oil prices hit a fresh five-year low on Monday as prices at the pump fell toward $2 per gallon in many areas.
The U.S. 'Detroit Three' - General Motors Co. (GM) , Ford Motor Co. (F) and Chrysler Group, controlled by Fiat's FCA (FCAU) - are "best positioned" among global auto manufacturers because of their emphasis on larger vehicles, Langan said in an e-mail. In fact, UBS estimates that lower gas prices could boost General Motors' 2015 earnings by 7%, or 30 cents per share, and Ford's 2015 earnings by 6%, or 10 cents per share.
Overall, December car sales are expected be about 16.9 million on a seasonally adjusted annualized rate, up 9.5% from December 2013, according to TrueCar, a buying and selling platform for automobiles.
"With the strongest demand in a decade, gains in highly profitable segments and modest incentive growth, automakers should be grinning as they close the books this year," said John Krafcik, president of TrueCar, in a statement.
U.S. auto sales rose 4.6% in November from a year prior, more than analysts expected and the best pace since 2003. The industry's annualized sales rate was 17.2 million vehicles in November, according to Autodata Corp., which was above the 16.7 million vehicles Thomson Reuters estimated from a survey of 41 analysts. But sales varied significantly among models with car sales generally declining while light truck sales soared.
At GM, spokesman James Cain said sales of SUVs and trucks are enjoying a steady clip executives expect to carry through December. GM's reported November sales increased 6.5% year-over-year to 225,818 vehicles, with Chevrolet Silverado and GMC Sierra full-size pickups rising 34% to 65,343. GM shares are down 15.2% year-to-date.
"People are tending to buy more vehicles and trucks which obviously helps the domestic industry," Cain said in a phone interview. "We happen to have a lot of new trucks and SUVs in our portfolio, so we have for the last couple months been performing very well and the trends we saw in the market have just continued."