Should You Invest in Automaker Stocks?

Several automotive names received a boost on Thursday as J.D. Power and Associates  raised their 2012 U.S. auto sales forecast from 13.8 million vehicles to 14 million vehicles.  The firm contributed the brighter outlook to easier lending standards in the industry.

Total auto sales in 2011 were 12.8 million vehicles, but were damaged by the devastating earthquake in Japan.  In addition to supply conditions improving from last year, credit is becoming easier to obtain for auto sales.  According to a report from Experian Automotive, outstanding car loans increased nearly 4 percent to $658 billion at the end of December, compared to a year earlier.  Six-year auto loans on new vehicles currently account for 23 percent of retail sales, compared to only 19 percent last year.

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Consumers continue to seek longer terms on loans as interest rates have declined to the lowest levels since 2008.  In the final quarter of 2011, the average rate for loans on new cars was 4.52 percent, compared to 4.84 percent a year earlier.  “Lenders are clearly on much more solid ground than they were two or three years ago,” said Melinda Zabritski, director of automotive lending at the unit of Experian.  The new released data sent shares of Ford Motor Co. (NYSE:F), General Motors Co. (NYSE:GM) and Honda Motor Co. (NYSE:HMC) higher on Thursday.  Shares of Toyota Motor Corp. (NYSE:TM) edged .31 percent lower, but are still up 27 percent year-to-date.

Although automakers and investors welcomed the new data, auto-repair companies have been the strongest performers in the auto industry.  Over the past three years, shares of Autozone Inc. (NYSE:AZO) and O’Reilly Automotive Inc. (NASDAQ:ORLY) have surged 152 percent and 159 percent, respectively.  This trend is likely to continue as the average age of cars on the road increases.  As of June 2011, the average passenger car on the road increased to 11.1 years old, compared to 9.8 years in 2009.  In 1995, the average passenger car was only 8.4 years old.  “The increasing age of the vehicle fleet, together with the increasing length of ownership, offers significant business growth opportunity for the automotive aftermarket,” said Mark Seng, global aftermarket practice leader at Polk. “Dealer service departments and independent repair facilities, as well as aftermarket parts suppliers, will see increased business opportunity with customers in need of vehicle service.”

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com