The seven-year sales growth streak for the auto industry hit the brakes in 2017 as it suffered its first annual sales decline since the financial crisis. Though sales dropped 1.8% from the last year to 17.2 million vehicles, 2017 still marks the fourth-best sales year in U.S. history. This is because this is the first time that the industry has cleared the 17-million mark for three consecutive years.
Of the six major American and Japanese automakers, Fiat Chrysler (FCAU – Free Report) posted the biggest sales decline of 8.2%, followed by modest declines of 1.3% for General Motors (GM – Free Report) , 1.1% for Ford Motor (F – Free Report) and 0.6% for Toyota (TM – Free Report) . Nissan Motor (NSANY – Free Report) and Honda (HMC – Free Report) sales were up 1.9% and 0.2%, respectively.
A strong economy, low unemployment, increasing consumer confidence, higher spending, fuel-efficient and technologically enriched vehicles, and relatively low oil prices will continue to fuel the industry. Additionally, the tax reform will provide a lift to U.S. sales but at the same time also encourage rate hikes, which will make financing of new vehicles expensive.
The shift in consumers’ preference from passenger cars to more profitable pickup trucks and SUVs, as well as longer usage of vehicles will be a drag on sales. The average age of vehicles on the road has climbed to 11.6 years, up from 8.8 years in 1998. Given this, 2018 might be the year of challenges for automakers with many market experts expect auto sales to fall below 17 million in 2018.
Investors should note that the auto sector has a solid Zacks Rank in the top 38% and the valuation looks appealing at the current level with a P/E ratio of 12.23, the lowest of all the 16 Zacks sectors. This could provide an upside to the stocks this year.
That said, we have highlighted three ETFs & stocks that will be in focus this year and could be attractive picks as well.
