Pub. 5 Issue 1

20 T he Kerrigan Index™ ended June 2019 at 564.25, shooting up 10.4 percent for the month and up 31.2 percent year-to-date, both significantly outperform- ing the broader US equity markets. The S&P 500 Index increased 6.9 percent for the month and is up 17.3 percent year-to-date. All seven of the component stocks were up for the month of June. Sonic Automotive posted the largest increase of +34.0 percent, followed by Group 1 Automotive (+16.5 percent), As- bury Automotive Group (+13.0 percent), Penske Automotive Group (+10.7 percent), CarMax (+10.4 percent), AutoNation (+6.3 percent) and Lithia Motors (+4.1 percent). Of note in June, 2019, CarMax posted an all-time high stock price and both Group 1 Automotive and Asbury Automotive Group posted 52-week highs. Additionally, Sonic Automotive’s market capitalization surpassed $1 billion for the first time since February 2017. Consistent with prior months this year, June 2019 sales declined from last year, down 2.6 percent for the month. However, overall volume remains strong with the seasonally adjusted annual sales rate (SAAR) at 17.29 million, topping the 17 million mark for the third time in four months and exceeding most industry analyst expectations. Through the first six months of 2019, sales are down 2.4 percent. Some analysts are predicting a stronger second- half given the launch of new and redesigned light trucks, as well as a possible interest rate cut from the Federal Reserve. Strong consumer confidence, steady economic growth and employment gains, and relatively low gasoline prices con- tinue to support new light vehicle demand, though analysts have noted that affordability is increasingly weighing on the market. TimFleming of Kelley Blue Book summarized June this way: “Transaction price growth accelerated in June, climb- ing 3 percent as demand for trucks and SUVs pushed sales and prices up in those segments. Overall, SUV prices were up 4 percent and trucks rose 3 percent, while car prices were flat (and still lost market share). Luxury and mainstream midsize SUVs are showing the most strength right now, with brand new models such as the BMW X7 and Kia Telluride driving incremental sales and price growth for their brands.” And looking ahead to the second half of the year, Jeff Schuster, head of global vehicle forecasts for LMC Auto- motive noted, “Despite all of the external noise, the beat goes on! A much more dovish Fed is under pressure and is now expected to make a series of interest rate cuts. This will provide support for auto sales in the second half of the year and help offset rising vehicle prices and the current level of incentives.” While new car sales are down, the used car market has proven much stronger. “The decline in new sales has been disappointing, but it’s important not to overlook the effect of growth in the used vehicle market,” said Thomas King of JD Power. “Used sales at franchised dealers are expected to increase by nearly 9 percent through the first half. Most significant for retailers is the greater profit opportunity due to higher front-end gross and F&I income earned compared with new vehicles. Overall combined new and used retailer profits through the first half are on pace to reach $23.4 bil- lion, up 3.7 percent from last year. Shifting away from the traditional focus on volumes, 2019 remains on target to be one of the best years recorded.” One of The Kerrigan Index component stocks reported earnings in June. CarMax reported record first quarter Auto Retailer Stocks Up Sharply in June BY RYAN & ERIN KERRIGAN, KERRIGAN ADVISORS