Are Auto Makers Running on FUMES?

Although a report earlier this week showed that consumer confidence in the United States unexpectedly increased in July, shoppers are remaining cautious on their vehicle purchases.

Major auto makers recently reported a mixed picture for July U.S. auto sales. Industry sales were on pace to increase 9 percent last month to 1.1 million vehicles. In comparison, many analysts expected a rise of 10 percent. According to Reuters, Kelley Blue Book estimates that the annual sales pace for July will fall just short of 14 million units. “If we were talking in February this year and you asked me what we’re going to have July, I’d say at least Fourteen and a half,” said TrueCar.com analyst Jesse Toprak. “But we’re going to barely get to Fourteen.”

The two largest U.S. auto makers both reported lower year-over-year new vehicle sales in July. General Motors (NYSE:GM) announced it sold 201,237 cars and light trucks in July, representing a 6.4 percent decrease from last year. Meanwhile, Ford Motors (NYSE:F) said its sales fell 3.8 percent to 173,482 vehicles. “We are seeing that the current data suggests that things are a little bit on the soft side compared with earlier in the year,” said Jenny Lin, a Ford economist, according to WSJ. Chrysler Group LLC, majority owned by Italy’s Fiat, posted a rise of 13 percent to 126,089 vehicles.

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The American auto makers appeared to lose steam from the production and inventory recovery in Japanese producers, which suffered setbacks due to last year’s earthquake and tsunami. Honda Motor (NYSE:HMC) U.S. sales surged 45 percent to 116,944 vehicles. The Honda CR-V sold 20,554 units, logging its seventh consecutive monthly sales record. The company also reported that its quarterly profit quadrupled to 131.7 billion yen ($1.7 billion). Meanwhile, Toyota Motor (NYSE:TM) said its U.S. sales rose 26 percent to 164,898 units, although it did miss the 30 percent increase estimate by Edmunds.

As the chart above shows, it has also been a mixed year auto maker stocks. Shares of Toyota Motor have gained 16 percent year-to-date, while Honda Motor shares have traded mostly flat. Ford Motor shares are down 16 percent for the year.

Even though Facebook (NASDAQ:FB) receives most of the heat for the biggest initial public offering flop in recent memory, General Motors deserves to be included in the discussion. The Detroit-based company’s IPO priced at $33 in November 2010, but recently hit a fresh post-IPO of $18.72 a share. However, the results are much worse as GM was bailed out by taxpayers, which are sitting on losses around $35 billion.

Investor’s Business Daily explains the math: “GM doesn’t have to pay back anything else, but taxpayers are still out $26.4 billion in direct aid. The Treasury still owns 26.5 percent of GM — 500 million shares. The stock would have to rise to about $53 to break-even on that direct aid. At the current price, the Treasury’s stake is worth just $9.51 billion. (Taxpayers lose $5 million for each penny that GM stock falls). That would leave taxpayers out $16.9 billion. But the true cost is much higher. President Obama let GM keep $45 billion worth in past losses to write off future earnings. These carry-forwards are typically wiped out or severely cut along with debts as part of bankruptcy. But in this case, the administration gifted huge tax breaks with an $18 billion book value. (That’s how GM avoided taxes last year despite a bumper $7.6 billion profit.)”

On Thursday, General Motors announced it earned $1.5 billion (90 cents per share) in the second quarter, down 41 percent from $2.5 billion ($1.54 per share) a year earlier.  “We recognize the severity of the declining European market and the impact on the automotive industry,” said Interim European Chief Executive Stephen Girsky, according to WSJ. “We are working hard on improving variable profit which includes reducing product cost, selling more cars and generating higher profit margins.”

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