Ticonderoga Securities: September Auto Sales on Tap - Sluggish Trends Expected to Continue

Ticonderoga Securities: September Auto Sales on Tap by Brian White

September Auto Sales on Tap Today. Today, September unit sales are scheduled to be released from leading auto makers such as GM, Ford (NYSE: F) (NR), Chrysler, Toyota (NYSE: TM)(NR), Nissan (OTC: NSANY) (NR), Honda (NYSE: HMC) (NR) and Hyundai. Further, both GM (11:00 AM ET) and Ford (1:00 PM ET) are scheduled to hold conference calls to discuss the September sales numbers as well as to provide a detailed discussion around current market trends. In our coverage universe, Tyco Electronics (NYSE: TEL)(Sell) and Molex (Nasdaq: MOLX)(Neutral) are most exposed to the auto industry.

Further Declines Expected in September but Better than 3-Year Average. Historically, September has been one of the toughest months for the auto industry, with a three-year average month-over-month decline of 25.7%, however, the negative impact of the downturn in the fall of 2008 and the post cash-for-clunkers hangover last year skews this average. Edmunds.com projects a decline of 5.5% month-over-month in September for the auto industry (six of the seven vendors). While this maybe well above the average aggregate decrease in U.S. unit September sales for the seven auto companies, it is important to note that we are coming off an unusually weak August with sales declining 6% M/M compared to a three-year average increase of 18.5% M/M. Earlier this week, The Conference Board's consumer confidence index declined to 48.5 from 53.2 in August, its lowest level since February this year. Following the slowdown in global economies and deteriorating consumer confidence numbers, we believe that weakness in auto demand will persist over the next 6-12 months.

Sluggish Trends Expected to Continue. The absence of incentive programs (e.g. "cash-for-clunkers"), coupled with lowered auto subsidy programs, high unemployment rates and deteriorating consumer sentiment have negatively impacted auto sales in recent months. Recall, passenger car unit registrations declined in Europe in July and August and new registrations plummeted by 48% from June through August. Auto sales in growing markets such as China have also been deteriorating, with a slowdown in unit sales and a rise in inventory levels. We have modeled auto sales within our connector universe to decline by about 5-10% sequentially during the September quarter on seasonality compared to the sequential uptick of 15% during 3QCY09. In our coverage universe, Tyco Electronics is the most dependent on the auto industry (34% of 2QCY10 revenues). Molex also has an important auto business (15% of 2QCY10 revenues) while Amphenol (NYSE: APH)(Buy) has the least auto exposure (merely 6% of 2Q10 sales).

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