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TMFDeej (99.47)

Auto Sales Have Bottomed - Month 2

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June 02, 2009 – Comments (7) | RELATED TICKERS: GM , F , TM

On May 1st, I made the call that light vehicle sales in the United States had hit a bottom and the rapid deterioration that we had witnessed over the past year would stop.  Some weakly disputed my claim by citing erroneous WSJ statistics and blanket statements that unemployment is headed to 100%.

Let's see how the market is performing a month after my call that we will not go below 9.5 to 10 million units on an annual basis in the U.S.  In May, 925,824 light vehicles were sold in the United States.  That's interesting, but since I used annual sales as a benchmark let's look at how the results look when they are annualized.  Here are the facts:

Using the widely cited (but nonetheless terrible) SAAR: 9.91 million units

Multiplying May's 925,824 sales by 12: 11.1 million units

Annualizing the year-to-date U.S. sales of 3,948,991 units: 9.48 million units and trending upward

All of this is despite the of the two largest bankruptcies in American history, let alone the auto sector.

Things clearly aren't all fluffy bunnies and cuddly kittens in the industry.  They're are bad.  As a whole sales were still down -33.7% year over year in May.  For those who are obsessed with percent changes, this number should improve dramatically as the year progresses because the comps will be come much, much easier.

I'm not saying that sales are going to bounce back quickly, they won't.  Or that we will return to the days of 17 million vehicles in the U.S. any time soon, we won't.  Much of that was fueled by an unsustainable trend of loose credit, MEWs, low interest rates, historically low unemployment, and overestimated residual values that lead to unreasonably cheap leases.  The days where we sold 16 to 17 million units annually in the United States are gone for a while, but things are stabilizing and businesses are adjusting.

U.S. light vehicle sales appear to have bottomed

Deej

7 Comments – Post Your Own

#1) On June 02, 2009 at 4:36 PM, bridgeboy0 (99.77) wrote:

"Some weakly disputed my claim by citing erroneous WSJ statistics and blanket statements that unemployment is headed to 100%."

Who could you be talking about?  :-)

Good info, thanks for passing it along.

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#2) On June 02, 2009 at 4:48 PM, alexxlea (36.14) wrote:

No offense, but when you offer 0% rates, insane cashback, programs that cover payments for extended periods of time if you lose your income, things like 250 dollars a month cash for half a year when you put down next to nothing, and so on, you better be moving some product. They're just subtracting sales from a later date when they can actually get some margin on these things, but oh wait! I forgot that rates are normalizing and our government can't outbid the entire world! Now won't that be fun.

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#3) On June 02, 2009 at 5:07 PM, TMFDeej (99.47) wrote:

Hi Alex.  No offense taken, but unfortunately your statment is not correct.  It is a common misperception that manufacturers are having a fire sale right now because some of them are in bankruptcy.  The companies that track incentive spending are actually finding that industry-wide spending is flat versus a year ago.

Ironically, people think that there are fire sales going on at GM and Chrysler but in reality spending on incentives is actually down at both of them over the past several months.  Chrysler's financial difficulties forced it to pull the plug on its special financing offers last month.

Both GM and Chrysler have been forced to stop offering leases.

Ford has actually found that it can cut back on incentive spending now that GM and Chrysler are having problems. 

The incentives that are available today are nothing compared to the huge wave of spending that was rolled out post-9/11 wth 0% financing for 5 years on most moels and continued with things like employee pricing for everyone, etc... over the subsequent years.

The "Big 3" are actually spending much less on incentives today thay they were over the past several years.  The Koreans, Japanese, and Europeans are actually the ones that are spending more on support today than they were in an effort to gobble up the market share that is up for grabs or because they are in denial of the new reality of the industry and refuse to cut production enough.

The payment waiver in the event of unployment program that you cited is actually a very inexpensive marketing gimmick.  Manufacturers can buy this coverage from an independent company for a couple hundred dollars if that per unit.

Deej

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#4) On June 02, 2009 at 6:00 PM, alstry (35.45) wrote:

Chrysler's sales were 79,010 units as the company reported its highest retail results of the year.

It is all about perception baby....it is all about perception.....and thousands of sales were advanced on the peception of liquidation.

That is the difference between Alstrynomics and Deej......Alstrynomics is all about being right and looking forward.....prepare for some horrible summer numbers as June may be still benefitting from the perception.

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#5) On June 02, 2009 at 6:37 PM, rofgile (98.98) wrote:

Good post Deej - I'm hopeful for a pick-up in auto sales to happen this year.  I still know people who are looking to buy a car, but trying to find the best deal (since last fall been waiting).  As new car sales relate to satellite radio subscribers - I'm hopeful we'll see a rise.

 

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#6) On June 03, 2009 at 6:07 AM, TMFDeej (99.47) wrote:

Thanks rofgile.  Your antecdotal evidence about people being in the market for a new car but holding off jibes with the Consumer Confidence numbers that were published last month.  I don't recall the exact number off of the top of my head, I should have written it down, but within the survey there is a section on auto purchase intentions.  The number of consumers who said that they are considering purchasing a new vehicle hit the highest level that it has been at in many months. 

There's a lot off pent-up demand for new vehicles.  Again, I'm certainly not saying that we are going to see a V-shaped recovery in auto sales.  I'm more pessamistic than that, but I do believe that sales have bottomed and that 9.5 to 10 million units is as low as they will go in 2009.  Hopefully sales in 2010 will improve from that level.

You mentioned satellite radio in your message.  Do you work for or are you invested in XM. Sirius?  I absolutely love my XM.  I would lose my mind on my 30 to 40 minute cocmmute to work without it.  I particularly like that I can listen to CNBC and Bloomberg on it.  I know, I'm so lame :).

Anyhow, thanks for reading.

Deej

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#7) On June 04, 2009 at 10:45 AM, sarcaz (22.54) wrote:

Deej - Thanks for the post, I follow your blog via RSS, too.  I have to disagree on the assumption that taking May sales * 12 will approximate the yearly sales.  Auto sales are seasonal, are they not?  My impression is that more people buy cars at certain times of the year.

Let's hope things pick up from here, as you say.

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