• Blinders Off Research

Sales vs Wholesales

With the exception of General Motors (quarterly), auto manufacturers report sales data on a monthly basis. Investors pay close attention to the sales data in order to gauge the health of the automotive industry. However, the reported sales data should only be thought of as insight into future production demand. This is because manufacturers earn revenue by wholesaling vehicles (vehicles sold to dealers and fleet customers), which is different than the monthly sales reports (vehicles sold to consumers and fleet customers). This might be painfully obvious to most readers, but I think it's important to discuss the difference especially when the variance between the two becomes substantial.

When sales are stable, they are a very good gauge of future production (a vehicle sold most often equals a vehicle that needs to be replaced). However, when sales become volatile, the difference between sales and wholesales can be significant (a vehicle sold does not equal a vehicle that needs to be replaced). The latter scenario is currently in play due to the sales volatility experienced in 2017. During the first half of 2017, sales fell by 2.1% year-over-year, and increased incentives did little to slow the decline. As I explained in this article, auto production is not easily changed on short notice and production cuts were not made until Q3 of 2017. This makes year-over-year revenue comps difficult for most manufacturers through Q2 of this year because the production production rate in the first half of 2017 was influenced by the record setting sales pace of 2016.

The following charts compare the difference between the reported sales that we’re all familiar and my wholesale estimates in the U.S.

I estimate that Ford wholesales will be down by 8.01% in the US for Q2. Most of the decline is due to a supplier fire that impacted truck production and a strategic decision to stop building passenger cars other than the Mustang and the Focus. Once production resumed, Ford provided an estimated adverse impact of $0.12 to $0.14 per share in Q2 but kept the full-year guidance unchanged.

GM is perhaps the best example of a manufacturer that’s had tough revenue comps despite year-over-year sales gains due to their aggressive production rate in first half of 2017. I estimate that GM wholesales in the U.S. will be up by .50% for Q2.     

FCA is the clear standout in this group with an estimated 23.32% increase in U.S. wholesales for Q2. March of 2018 marked the end of 18 consecutive monthly sales declines for FCA and production has since increased substantially.

As you can see, there’s a significant difference between the sales data that’s been reported during the first half of this year compared to my wholesale volume estimates. Each example has a different set up going into their Q2 earnings reports and a far more significant set up going into Q3. If this information was useful and you think it can help with your investment decisions, please contact us for more details.

Thank you for taking the time to read this. As always, I hope the content of this article was helpful. These are my opinions and the content contained in or made available through this article is not intended to and does not constitute investment advice. Your use of the information or materials linked from this article is at your own risk.