Although Japan’s devastating earthquake was almost three months ago, aftershocks are still being felt in one of the nation’s most important sectors: the automobile industry. In addition to being home to some of the world’s biggest automakers, including Toyota and Honda, the nation has a number of smaller parts manufacturers and suppliers as well, which are crucial to not only the Japanese car industry, but the global business too. Thanks to these ongoing concerns, investors are likely to put an extra premium on today’s important motor vehicle sales report, which will show investors how many cars were sold in the U.S. for the month of May.
Analysts are expecting a slight dip in U.S. sales from the year ago period, but it looks to vary considerably between the individual manufacturers. Chrysler is expected to boast a double digit gain while GM is predicted to post a 2% increase and Ford could see marginally lower sales in the period. However, the Japanese carmarkers look to have a much more difficult time as both are expected to see sales plunge by as much as 29% in the month, largely thanks to the continued supply issues that are plaguing Japan. “Inventory constraints finally hit the Japanese auto makers this month but the recovery in supply appears quicker than first anticipated,” analyst Jesse Toprak said, adding that May could be the worst total of the year. “This is a sizable speed bump on the road to recovery.”
Thanks to these factors, the seasonally adjusted annualized rate of sales is expected to plunge by over a million cars down to just 12.2 million. More pessimistic predictions came from Truecar.com, as well as the firm predicted a 3.7% decline in sales from a year ago and a 8.3% plunge from April. The supply chain hits have taken a while to hit the market partially as a result of higher gas prices, which helped to keep inventories rather high and allowed many dealers to keep up enough in reserve directly following the quake. Yet, now those supplies are running down and fresh additions to the inventory supply will be needed soon or car sales could continue to slump in the U.S., especially if gas prices remain high and the consumer remains subdued [see all the Consumer Discretionary ETFs here].
With this key data release on tap, the First Trust NASDAQ Global Auto Index Fund (CARZ) figures to be particularly active in Wednesday trading. The fund tracks the NASDAQ OMX Global Auto Index, which is a modified market-capitalization weighted index designed to track the performance of the largest and most liquid companies engaged in the manufacturing of automobiles. In addition to heavy weights for Daimler and GM, the fund puts close to 15% of total assets in Honda and Toyota, two companies that could see big swings based on the May sales figures. In fact, Japanese stocks make up close to one-third of the fund’s total assets. So if the supply issues look to be under control and if the decrease isn’t nearly as much as some analysts had initially forecast, look for CARZ to rise significantly on the day. If, however, investors see a steep drop in car sales and it appears as though further issues to the supply chain could hamper sales down the road as well, CARZ could be in for a very rough session indeed.
The other car ETF, the Global X Auto ETF (VROM) also could see a surge in activity in Wednesday’s session if numbers from may surprise investors. While there is some overlap with CARZ, this ETF distinguishes itself by a broader base of holdings (50 compared to about 32 for CARZ), lighter allocation to Japanese stocks, and the inclusion of smaller auto parts makers (CARZ focuses more exclusively on end carmakers).
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Disclosure: No positions at time of writing.