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back to index backAMERItalk February,  2017


Autos: North America Build Solid in Q4; Upside Potential in 2017

North America production expanded 1% in Q4, meeting our/consensus estimate. We look for flat production in 2017 with inventory levels ticking lower offset by modest US demand growth (+0-1%). Positively, there are increasing signs (e.g., consumer confidence at 13-year-highs) that US demand could move higher on Trump economic policies. At recent investor conferences, industry participants have a more positive tone toward the US market. Additionally, OEMs Q1 build schedules have been increasing in recent months and now call for 4% growth versus our +1% estimate.

- Full-year perspective. In 2016, North America production rose 2% yoy to 17.75 million units. Production outstripped US sales growth by 100-200bps due to localizing production (e.g., Audi) and strength in Mexico demand (+15-20%). We expect North America production to be flat in 2017 as planned inventory reductions offset modest US demand growth. There could be upside to our estimate if Trump economic policies are able to accelerate US demand by the end of the year.

- North America production increased 3% in December. Production expanded 1% for the quarter, meeting our/consensus Q4 estimate. OEM production reflects stable US demand as major economic indicators (employment, income and confidence) point toward a potential acceleration. Specifically, in December, consumer sentiment (typically a leading indicator) reached its highest level in 13 years. Although most industry’s outlooks call for stable demand/production in 2017, we’ve noted a shift in management tone surrounding 2017 demand.

- Q4 production details:
----- OEMs gaining share: Hyundai (+25%), GM (+15% yoy), Volkswagen (+13%).
----- OEMs losing share: FCA (-15%), Ford (-12%), Daimler (-6%).
----- By country: Mexico (+7%), US (+0%), Canada (-7%).

- Q1 production schedules moving higher. Q1 schedules have increased each of the past two months and now call for 4% growth, above our estimate down 1%. Rising build expectations are mostly seen at Ford and GM trucks, partially offset by Chrysler trucks.

- Domestic inventory levels declined 2 days sequentially to 80 days, modestly ahead of typical December inventory level of 74 days. At current levels, there is roughly 80,000 units of excess inventory. We believe excess inventory is largely diminished over the next several months based on production cuts at Chrysler pickups and GM cars (which account for all of the excess).

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Source: BAIRD - GAI






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