The automotive industry started the year slower than expected after harsh winter weather froze sales at dealerships across the nation. As sales slowed, a growing number of analysts wondered if it was a sign of weakening demand after years of consistent growth. That sentiment reversed quickly as sales rebounded strongly in March, and if April goes as planned, it should further reinforce that new vehicle demand remains healthy. Here's what automotive investors can expect when April sales are released Thursday, May 1, and one key segment to watch.
New vehicle sales in the U.S. market are expected to rise 8.5% in April, compared to last year, as a typically strong spring selling season is under way, according to J.D. Power and LMC Automotive. The forecast expects annualized sales to reach 16.1 million vehicles in April, which is far ahead of last year's 15.2 million level.
A separate forecast from Edmunds.com expects sales to increase slightly higher, a 9.1% increase for an annualized rate of 16.2 million vehicles. Using this forecast, you can see the rebound from this year's initial sales decline.
Edmunds expects America's two largest automakers, Ford (NYSE:F) and General Motors (NYSE:GM), to post sales increases of just under 5% in April, compared to last year. On the other end of the spectrum, Toyota (NYSE:TM) and Nissan are expected to post significant sales increases of 14% and 17.9%, respectively.
"Auto sales are hitting their stride as the spring selling season begins, and the pace has returned to the level expected at this stage of the recovery," said Jeff Schuster, senior vice president of forecasting at LMC Automotive, according to Reuters. "Fueling the growth further as the year progresses is a very robust level of new-model activity, with 63 new or redesigned models expected to hit showrooms, a 60 percent increase from last year."
What to watch
One vital sales segment investors should be watching in April is the full-size truck segment, which will likely continue to outpace the overall industry in growth. Through the majority of the first quarter General Motors refused to increase its incentives on its newly redesigned Silverado and Sierra, and it caused sales to spiral double digits.
That changed in March when America's largest automaker decided to unleash steep incentives on the two full-size trucks. The strategy sent sales of the Silverado and Sierra up 7% and 22% last month, respectively. GM apparently liked the look of that sales increase and decided to offer its "truck month" a second time, in April.
It will be interesting to see if GM's full-size trucks stole the thunder from Chrysler's Ram trucks for the second straight month and it will be of high importance to investors, as full-size trucks represent significant profits for automakers. Also, not to be forgotten, is Ford's F-Series, which remains the best-selling vehicle in America despite being the oldest design of competing full-size trucks. Ford's F-Series will soon be the freshest redesign when its 2015 model is launched at dealerships shortly. It is possible increased incentives on the older F-Series models, in preparation to clear lots for the new model, could also eat into the Ram's and Silverado's piece of the pie.
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Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.