An improving economy will see higher car sales. People feel they can finally afford their dream car, and they take the plunge. Things are starting to move in that direction.
In February, total new vehicle sales estimates from the Australian Bureau of Statistics (ABS) were up 0.1% seasonally adjusted. Passenger car estimates were up a seasonally adjusted 0.8%. Other vehicle categories were down.
While all conditions may not be in place for a bumper year in sales yet, here are two ASX-listed car dealership companies that you should know.
AP Eagers Limited (ASX: APE) reported 2013 annual revenue was up 1% to $2.67 billion, and statutory net profit was $64 million for a 15% gain. According to the company, car affordability is at its best level in decades, but the slowdown in the resources sector has taken some of the wind out of new car sales.
The company's biggest gain in earnings came from its investments, which is predominantly its 19.57% stake in Automotive Holdings Group Limited (ASX: AHE).
In late 2013, it started a new automotive service company called Precision Automotive Technology to distribute its own range of car care products, using brand names such as Perfexion and 365+. We should see its performance in FY2014.
For FY2014, the company expects overall new vehicle sales to be in line with FY2013. It said it will be looking for further acquisition opportunities.
Automotive Holdings Group, the largest auto dealership business, operates 152 franchises at 87 dealerships in WA, VIC, NSW, QLD, and New Zealand. Group half-year total revenue grew 6.8% to $2.32 billion. Net profit was $38.3 million, up 1.1%.
Its automotive segment revenue increased 8% to $1.92 billion and profit was up 20%.
The company also operates logistics services for storage and transport. Its transport and cold storage segment saw profits fall about 29% due to investments, weaker market volumes, and flooding and drought in NSW and Queensland.
Foolish takeaway
Increasing car sales are a sign of an improving economy. With lower interest rates, affordability is better. If unemployment rises and consumer confidence doesn't improve strongly, robust growth may be constrained.
Investors can follow these two companies to gauge consumer spending trends. In the meantime, AP Eagers' dividend yield is 4.38%, and Automotive Holdings Group's is 5.65%, so they can add to portfolio returns as the market improves.
