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People Are Piling Into New Pickups

7 June 2013 in Trading Ideas

Wherever you come down on the shale gas/fracking debate, one thing seems clear: It’s done wonders for the US auto industry.

As the sector heads into its best overall year for sales since 2007, the latest data from American car manufacturers has revealed that Detroit’s Big Three have gained 1.2 points of market share this year – the first time all three have gained share in the January-May period in at least 18 years.1

Helping that performance, if not driving it completely, has been the surge in pickup sales, resulting from contractors and small business owners updating their fleets, as well as the increased practice of fracking that has driven demand in the Northern Plains and Pennsylvania.

Consider: Ford’s F-Series pickups saw sales growth of 31% last month, General Motors’ Chevrolet Silverado posted growth of 25%, while Chrysler’s Ram truck had a sales rise of 22%.

This performance is no small matter, beginning with the stocks of US carmakers and related suppliers. The That New Car Smell motif, which comprises a portfolio of stocks from those industries, is up 14.9% to date in 2013, and has gained 45.1% since its inception on June 20, 2012.

That New Car Smell

But truck performance looms just as large within these corporations’ operations. According to Bloomberg, pickup profits of as much as $10,000 a truck are funding the overhaul of the Big Three’s entire lineups.

And remember that Ford’s F-Series accounted for 90% of its overall global profits last year.

Despite the chest-thumping performance by US pickups, the picture for the overall global market doesn’t appear to be quite as stellar. Total U.S. auto sales did rise 8.2% last month, but that’s a slowdown from double-digit rates of the last three years, prompting CNBC automotive reporter Phil LeBeau to remind us that expected overall US vehicle sales of 15.5 million this year is shy of prior estimates by some analysts expecting sales to hit 16 million.2

Unfortunately, the power of the pickup can only do so much.

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1Keith Naughton, Craig Trudell & Tim Higgins, “American Pickup Sales Leading Best Sales Year Since 2007, Bloomberg.com, June 4, 2013, http://www.bloomberg.com/news/2013-06-04/american-pickup-sales-leading-best-sales-year-since-07.html.

2Althea Chang, “US Auto Sales Keep ‘Trucking’ Higher, Yahoo Finance, June 3, 2013, http://finance.yahoo.com/blogs/big-data-download/us-auto-sales-keep-trucking-higher-185507360.html.