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It's official, September's U.S. light vehicle sales are going to be Terrible...but not for the reason that you think

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September 21, 2009 – Comments (21) | RELATED TICKERS: F , TM

After being cautiously optimistic at in a couple of posts over the past two weeks I decided to let my fingers do the walking and run some channel checks on how auto sales are actually going in September.  Doing so too early in the month is usually fairly counterproductive because sales in the auto industry are very back-weighted towards the end of the month for a number of reasons, such as dealers hold off on reporting sales to manufacturers in the hopes that incentive monies will increase, consumers have been trained to wait until the end of the month to get the best deal, etc..., but we're getting close to late enough to get a reasonable assessment of how things are going.

So, where do we stand?  I can sum up September auto sales thus far in two words...They Suck.  This is not tremendously surprising.  Any time in the past that a major, successful incentive program has been run in the U.S. there has been a serious hangover effect in the months immediately following the conclusion of the program.  Take a look at how sales collapsed after GM ended the 0% financing offer that it rolled out after September 11th or when the Employee Pricing for Everyone that was introduced several years later ended:

Initially I was hopeful that the sales decline would be less dramatic this time because from everything that I have been hearing, demand has started to improve on its own, even without the government's Cash for Clunkers program.  The problem is that dealers don't have any cars to sell.  The small vehicles that people who traded in their clunkers on are very high volume models that account for a huge percentage of industry volume.  Take a look at how the sales of these small models exploded during the C for C program:

Toyota's Scion division:

June 2009: 4,262 units

August 2009: 10,727

Nissan Versa:

June 2009: 5,473

August 2009: 18,580

Honda Fit:

June 2009: 5,585

August 2009: 13,593

Chevrolet Aveo:

June 2009: 2,217

August 2009: 12,733

You get the idea.  Normally there is a reason that a manufacturer runs a huge, expensive, and in turn successful incentive program in the auto industry...their inventory level is too high and dealers are swimming in cars.  Manufacturers didn't initiate the Cash for Clunkers program though...Uncle Sam did.  Automakers had slashed production dramatically to levels that I have never seen and in turn they were in the process of drastically their excess inventory heading into the C for C program.

As a result, when demand spiked dealers had their lots picked clean.  I'll have to do some digging to find out what the official inventory numbers are for the industry, but they have fallen dramatically.  Dealers don't have enough cars to sell, particularly high volume models.  So any pull-forward effect that the Cash for Clunkers program would have normally had will be magnified tremendously by the lack of inventory out there.

So, enough explanation let's talk numbers.  Here are a few industry-wide sales numbers for everyone to use as a point of reference:

June 2009 (pre Cash for Clunkers: 850,000

September 2008 (year-over-year comparison): 960,000

August 2009 (last month): 1,260,000

Again, I'm hearing that sales have absolutely tanked in September because there are no cars out there.  My initial educated guess (and that's all that estimates are...particularly this early in the month) is that we'll be lucky to hit 700,000 units in September and that it is very possible that sales will come in at around 650,000.  I will be able to refine this estimate as we get closer to the end of the month and more accurate info is available. 

Hopefully continued improvement in demand for things that didn't have their inventory sucked dry by Clunkers, such as larger trucks and luxury brands will help absorb some of blow to sales by the lack of availability of a number of high volume vehicles, particularly since a number of manufacturers have rolled out aggressive new incentives programs as the month has progresses.  Time will tell.  In the meantime, count on a lousy auto sales month in September with demand recovering towards the end of the year as the pull-forward effect from C for C wears off, as inventory levels recover, and as manufacturers introduce even more aggressive incentives for their big year-end sales push. 

Rather than looking at the total industry number in September, focus on the sales results of brands or models that are not being as affected by this inventory shortage, such as BMWs or certain trucks.

Deej

21 Comments – Post Your Own

#1) On September 21, 2009 at 4:21 PM, russiangambit (29.49) wrote:

Such as BMWs? Who in the right mind buys BMW these days? At EUR/USD at almost 1.5? 

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#2) On September 21, 2009 at 4:21 PM, Alex1963 (28.84) wrote:

Great post as usual

Is it too much to ask for you to give an estimate of how long it''ll take for inventories to get restocked? With all the rehiring and hour/week manpower increases it can't be more than a few weeks right? Or is the upstream of materials and ancillary supplies bottlenecking the pipeline?

I'm curious also what your thoughts are on the GM guarantee. It's 30 days or something, right?. I thought that was a really good idea. Just like the Hyundai "lose your job" program I thought was ingenious.

Best

Alex 

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#3) On September 21, 2009 at 4:24 PM, alstry (36.57) wrote:

Now you and I are tracking.

Absent another incentive program...expect October to  be worse....much worse as money dries up.

Hospitals are running out of money, schools are running out of money, cities are running out of money.

It is not a big deal...it is just money is running out with credit being cut off and incomes evaporating.

 

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#4) On September 21, 2009 at 4:25 PM, davejh23 (< 20) wrote:

"Again, I'm hearing that sales have absolutely tanked in September because there are no cars out there."

It would be interesting to see current inventory numbers compared to previous years.  I work about a block away from a stretch of dealers and all of their lots are still packed.  These aren't luxury dealers...GM, Toyota, Honda, Ford, Subaru...  Of course, I live in a state with harsh Winters and AWD sales tend to pick up in the Fall/Winter...not small vehicle sales...though, I guess Subaru sells lots of small AWD cars.

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#5) On September 21, 2009 at 4:32 PM, alstry (36.57) wrote:

Expect hundreds of thousands to lose their jobs over the next few weeks due to massive contractions in sales around the country.

Air Products quarter-to-date sales down 26 pct

Pratt & Whitney to ax 1,000 Conn. jobs

My guess is that not many of these people will be in the market for new cars.

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#6) On September 21, 2009 at 4:39 PM, TMFDeej (99.22) wrote:

If nothing, Alsty is predictable.  He pops in and drops an unwanted comment about unrelated items pertaining to the end of the world...

For some reason every time I see one of his posts I think of that rap batle in Eight Mile where Eminem is going up against some guy names "Lotto"

"This guy keeps screamin', he's paranoid!...

'Blahbity bloo blah blah blah blahbity bloo blah!'

I didn't hear a word you said, 'hipidy hooblah!"

Deej

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#7) On September 21, 2009 at 5:02 PM, TMFDeej (99.22) wrote:

Really quickly for anyone who's interested (I've got to run to my son's football practice).

Day's Supply (an industry inventory metric) for the entire industry was 28 at the end of August versus 45 in July 2009 (a month ago) and 58 in August 2008 (a year ago).

Furthermore, many of the vehicles that are out there, in terms of small cars are undesirable combinations of colors and/or options.

Deej

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#8) On September 21, 2009 at 5:03 PM, alstry (36.57) wrote:

deejipoo,

You are simply upset that I called September sales evaporation.....and you didn't.

Again....just wait until October if you think September is  bad.

And I am not saying it is the end of the world.....simply massive unemployment at a rate we have never seen before as we move away from a consumer economy.

When the consumer is not spending in a consumer economy...we can get rid of 50% of the workers since sales will evaporate.

50% seems like a good number...don't ya think?????

Caterpillar Global Retail Sales Down 48% in 3 Months to August

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#9) On September 21, 2009 at 5:17 PM, Varchild2008 (84.59) wrote:

I already called September through December = HORRID sales on my Blog.

So I laugh at the author + Alstry boasting about declaring September sales has horrid.

Of course they are.... Ford already said it would take up to 3 weeks to bring inventory levels to where they should be post Cash for Clunkers.

3 weeks?  Gee... That's the entire month of September just to fix Inventory nevermind generate improved Sales.

But, I still stand by my stake in (F) Ford.  Until January 2010 proves me wrong.

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#10) On September 21, 2009 at 5:20 PM, Varchild2008 (84.59) wrote:

One other mention..

In regards to (F) Ford.... There have been some upside, surprisingly positive Press Releases this month.. in September.. in regards to Ford's FLEET Sales...

The real story is not "HORRID SALES"  "FORD IS DOOMED"

Nor is it "Didn't Need Cash for Clunkers to Sell 1 million Cars."

The Real Truth is somewhere in between.

Which is why I laugh each day investors continue to pound this stock.  I have a great deal of money that I will put on the sidelines and jump on this (F) with a big increase in my stake if it continues to slide much further than it already has.

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#11) On September 21, 2009 at 6:44 PM, Alex1963 (28.84) wrote:

Thanks Deej

 

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#12) On September 21, 2009 at 7:53 PM, TDRH (99.48) wrote:

Again, a very nice post.  Thank you for sharing.

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#13) On September 21, 2009 at 11:01 PM, tonylogan1 (28.30) wrote:

cmon Deej... tell me you were not thinking of Alstry when you said "time will tell"

At this point, I think you and Al are like a couple in a dysfunctional marriage. You like/want/need the abuse...

As for the post, I like the original thoughts, though I'd be curious how someone can tell what % of sales decline comes from lack of inventory vs lack of buyers.

Are you hearing from dealers real tales of turning down significant amount of customers because they lack inventory?

My WAG is inventory is less an issue than pulled forward CFC sales, but then, that would not have made for much of a blog...

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#14) On September 22, 2009 at 8:56 AM, jstegma (29.54) wrote:

Great information.  Thanks.

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#15) On September 22, 2009 at 8:59 AM, Gemini846 (45.50) wrote:

Having worked at a GMC dealer in 2001 and recently been car shopping during the tail end of CfC I can confim that the few small cars left on lots were mostly high end non-budget models that were undesirable. Its so easy for dealerships to customize cars these days, I think the factories should produce less of these high end models. People aren't buying a Corolla to get "all the fixins" if they wanted that they would buy an IS300.

In our area two of the largest GM dealers had already closed by the time CfC rolled out resulting in mostly imports being sold under the program. Needless to say you couldn't find a qualifying Honda Civic for over 100 miles.

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#16) On September 22, 2009 at 9:59 AM, TMFDeej (99.22) wrote:

Thanks Alex.  It's tough to say how long it will take for manufacturers to restock their dealers.  Most automakers have already cranked up production significantly.  Many of those vehicles will begin to trickle in soon and the bulk of them should arrive in time to be sold during the fourth quarter. 

We can keep an eye on the official inventory numbers or take a peek at a few lots to see when inventory returns to a more normal level.  The sales after that point will be a more accurate gauge of the real demand for light vehicles in the U.S. and in turn the state of the consumer.

I personally am not that big a fan of GM's 60-Day guarantee program.  It just seems like sort of a gimmick to me.  First of all, consumers essentially have to pay $500 to have the option to their vehicle after 60-Days because if they go with this program they forego $500 in bonus cash that is out there.  I personally would rather take my time, shop around, make as many test drives as I need and then save $500 bucks rather than have the option to return my vehicle if I decide that I despise it.

Who knows though, perhaps GM will suck in a lot of impulse buyers who normally would have been hesitant to purchase a new vehicle.  One thing that I do know is that, new, innovative incentive programs tend to be more effective than just straight cash back or special financing rates.  Whether or not this program will be successful remains to be seen.  If I had to make an educated guess, I personally would say no (man those Whitacre TV ads are absolutely terrible), but who knows.

Deej

Deej

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#17) On September 22, 2009 at 10:07 AM, TMFDeej (99.22) wrote:

Varchild2008 I don't think that writing a post about how the month is going to be is "boasting" as you put it.  You can keep laughing if you'd like but we're not saying the same thing.  I actually think that sales will continue to increase as the fourth quarter progresses with September being the weakest and December being the strongest of the four month period.

The easy money in Ford was made a lont time ago.  Hopefully you caught it near its lows.  The company still has some serious financial problems and even though the U.S. auto industry will recover, we will never see a recovery in sales to the levels that many automakers have been built to support.  Ford's the best of the "Big 3" domestic automakers, but that's not saying much.  As a company, it's far from being in good shape.

Deej

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#18) On September 22, 2009 at 10:14 AM, TMFDeej (99.22) wrote:

Alsty, I've been saying for months now that there would be a serious hangover sales-wise after Cash for Clunkers ended.  There always is after a major program like that.

I'm upset because I don't like you yet you constantly follow me around and post comments on my blogs that rarely are even related to what is being discussed.  In fact, I wouldn't call it upset, more like amused.  I used to let you bother me, now I just laugh at you.  I'll see you when your CAPS score is zero.  HAHAHAHAHAHAHAHA.

I would actually be willing to pay money for CAPS to add an ignore function to this site, so no tonylogan, I neither want, nor need to interact with alsy.  His posts are practically worthless.  This is a website that is attached to a GAME about INVESTING, yet he has not made any stock picks since June and his score is falling off of a cliff.  I don't really read his repetitive posts, but chances are they're just like his comments on this blog with nothing but links to articles about how Friendly's in Kalamazoo Michigan laid of six people.

Deej

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#19) On September 22, 2009 at 10:16 AM, TMFDeej (99.22) wrote:

Thanks for reading and for the kind words Alex, TDRH, jstegma, and Gemini.

Deej

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#20) On September 22, 2009 at 5:05 PM, Varchild2008 (84.59) wrote:

Reading what? A Story without the entire truth?

TMFDeej... No offense.. But you reply to my comment by saying that you believe sales will increase into December.

Where in your article do you say that?  You didn't.  You wrote nothing but a "Cash for Clunkers is gone oh Woaw is the world for Auto Sector Companys."

This is not the whole truth TMFDeej... Not at all.... Thus, I don't see how one reads your article and comes away with anything but, "I better ditch my FORD stake."

You talk about how the EASY money is already made...

That's what Jim Cramer said...ya know...25% above the March Lows.. and now we are 50% above them....

The easy money??? seriously???  There's nothing easy about the market... This is an Investment tool.. plain and simple.
Investors put money into company's they believe in going forward.

And if you are proven wrong you pull out and put the cash elsewhere.  But, I see nothing in your article that proves the (F) Ford thesis incorrect here....

And it turns out today.. FORD trades up big time off 3 big press releases... All positive for FORD.. CHINA Auto Plant will add big to income.... Debt will get paid off if sales figures continue to look good for FORD... FORD sold cars at the LEAST decline from August than anyone!

FORD is looking clearly...once again....as we see today..1 day after you wrote your article...that it is a good investment.

A Press Release TODAY comes out saying that your sales figures for September are underestimating completely what the september numbers will actually be.  Where's the apology?

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#21) On September 22, 2009 at 5:09 PM, Varchild2008 (84.59) wrote:

P.S.  With (F) trading in a range... You buy on the DIPS and sell on the SPIKES.... If you are short terming the stock.

You don't just throw up your hands and say.. That's it folks... like a Cartoon Character.. There are many ways to play FORD.

Right now.. SHORTING (F) ain't one of them.  Expecting DOOM from (F) Ford isn't the play.

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