Can Google Search Data Forecast Auto Sales?

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Can Google Search Data Forecast Auto Sales?

Google search data via Google Trends and Google Insights are very powerful tools to examine what web users are searching for. If you have been following my blog you know I really like to use Google search data for getting insights to what people are thinking. Can you use it to look into what people are buying?

I believe it can, especially if it is an area where people really use the web to search for a particular item. I think auto sales are that type of purchase. I know I used the web extensively last time I looked for a new car. I searched about the cars I was interested in and then ultimately when I was ready to buy I searched for auto dealers to find a local dealer to buy from. Here is a chart showing Google Search volume for the two terms "auto dealer" and "car dealer". Also shown is the actual U.S. light car and truck sales data on a SAAR (seasonally adjusted annual rate) basis. The data is from Autodata corp.



I notice a few things. First of all, the overall trend seems to fit well. Search volume came down last year as auto sales dropped off and then recently search volumes have come back up as auto sales have bottomed and started to come back up. The search volume seems to lead the actual sales data by a few months. You can see that in how search volume dropped off before sales data did last year, you can also see it in the bottom for search data which came last Oct/Nov but the actual sales data took a few more months to bottom. So it looks like it has potential as a forecasting tool. It also looks like search volume is coming back up recently which would predict that autosales should be picking up in the coming months which is good for the auto industry.


Ford vs. Toyota

Next I looked at the relative search volumes for different auto companies. Ford and Toyota have the most interesting results and probably the most meaningful because GM and Chrysler search volumes would be skewed by excessive searches surrounding the bankruptcies and problems with the companies. But here is a chart showing the search volume for "Ford Dealer" and "Toyota Dealer" along with some actual sales data noted on the chart (sales data from Autodata corp.). (click on the chart for a larger view)




Interesting observations for this comparison. If you look back at the start of the chart which was a year ago, you will notice that searches for "Toyota Dealer" outnumbered searches for "Ford Dealer" and at that time actual sales also were in Toyota's favor. But recently, the relative search volume has flipped and Ford is now on top. And of course the actual data from May shows Ford sales volume now on top of Toyota. So the search volume seems to be a good predictor of relative sales changes. I think this sales volume speaks real bullishly for Ford's prospects going forward. And tracking this chart I think would be a good investment tool. Lately, Ford stock has been doing quite well which also correlates with the upturn in "Ford" search volume. I may have to look into Ford stock.

Please Do Try This At Home...

Obviously I really like looking at search volume data via Google Trends and Google Insights and I will share much more in the future on it. But I think for businesses that are driven highly by sales that come either directly or indirectly through the internet that search volume analysis can be a valuable tool to the investor. But here are some watchouts and recommendations:

• Make sure the terms you are searching for are indicative of sales of some product, not just general interest in a company.
• Try different search terms, Google Trends and Insights allow you compare different search terms on the same chart and to plot a combined search volume for multiple terms.
• Be aware of normal seasonal patterns. And don't misinterpret them for a sales uptick. You need to look at year over year comparisons in that case.
• I would use search volume as a relative indicator, not an absolute indicator. It is best for identifying trends and relative shifts and changes.

So here is your homework. Take a look at Google Trends and see if you can see when Apple Ipod sales went from a rapid explosive growth to more of a flat growth. Then look at this wikipedia entry and see if it agrees with actual Ipod sales.

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