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TMFDeej (99.47)

Misleading article of the day: World markets surge as US data boost recovery hope

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April 02, 2009 – Comments (9) | RELATED TICKERS: GM , F , TM

I always hate it when journalists, particularly headline writers, try to explain short term moves in the markets when they have no idea what they're talking about.  Here's today's misleading article:

World markets surge as US data boost recovery hope

I can see the stock market rising in anticipation that some positive news might come out of G20, but the data that came out of the U.S. yesterday was anything but positive.  Here's the quote that bothered me the most:

Investors were encouraged after U.S. car sales jumped by nearly 25 percent last month from February, beating the typical rise and underpinning hopes of a turnaround in the American auto market.

When I heard people getting all happy about how the dismal auto numbers that were released yesterday were an improvement over February I decided to do some research.  Not surprisingly, must like home sales, auto sales are very seasonal.  Over the past five years, sales in March have been an average of around 20% higher than they were in February.  That's approximately the increase that we saw month over month in 2009 as well.

OK, the increase this year was a couple of points better than that, but certainly not a statistically significant amount.  Furthermore, some of the increase can be explained by the fact that sales tax was scheduled to increase in California by 1% in April.  I have spoken with a number of people who pulled forward their new vehicle purchases in an effort to avoid this tax hike and California is one of the largest, if not the largest auto market in the U.S. 

While sales certainly didn't fall off of a cliff, to me the March figures represent more of the same rather than evidence of improvement in market conditions.

Deej

9 Comments – Post Your Own

#1) On April 02, 2009 at 7:00 AM, TMFDeej (99.47) wrote:

Here's another one:

Auto Makers See a Ray of Hope

The WSJ should be better than that.  Regardless of all of the talk about scrappage rates, etc... I actually see more downside risk than upside hope over the next several months for auto sales.  If General Motors or Chrysler, or both are forced to file for bankruptcy it would likely be absolutely disasterous for auto sales, at least their sales.

Think about it.  Even I, someone who realizes that the warranty coverage on GM and Chrysler products will likely be safe and that these companies would continue to operate even while in bankruptcy proceedings, would be extremely hesitant to purchase a vehicle from a bankrupt company. 

Why bother when there are so many other good vehicles out there?  If I was gung ho buy American, I'd just buy a Ford instead of a GM or Chrysler product unless there was an absolutely huge price advantage to going with a vehicle from the troubled company, and I'm talking thousands of dollars.  The more I think about it, the more I think that the problems that GM and Chrysler are having are great news for Ford.

In order for me to be more optimistic about the short term trend for auto sales I would have to see some sort of government program like trash for cash or some other sort of tax deduction for new vehicles passed.  I'm not advocating government intervention in the auto sector, just saying that such a program would almost certainly provide a short-term bump to sales.

By the way, I have a lot of respect for Chrysler President Jim Press.  He's certainly a lot better than that joke Bob Nardelli, but this has to be one of the lamest quotes that I have ever seen:

Jim Press, Chrysler LLC's vice chairman and president, said, "The market is starting to show small signs of life which need to be nourished like seedlings."

Deej

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#2) On April 02, 2009 at 8:02 AM, AnomaLee (29.17) wrote:

I just wrote a similar blog to yours. I feel like a dupe.

I bought a Chrysler last year. I love the car, and part of my intent was trying to support a good U.S. product. However, all of this uncertainty makes me very uneasy. I've definitely considered trading my car in, so I agree with your assumptions on buyer pyschology.

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#3) On April 02, 2009 at 8:11 AM, TDRH (99.85) wrote:

Suppose there is so much doom and gloom that the writers want to stand out in the crowd?  In some cases the industries themselves (NAHB - NAR others) blatantly spin the numbers to mislead the public. 

Unfortunately the fundamentals in the economy have not changed.   Real incomes cannot support past levels of consumption and without the previous leverage - contraction is necessary.  Either supply/capacity to produce has to be removed or prices need to fall to qualified demand levels.

The L shaped bottom seems to be the semi-consensus and I agree for the most part.   The trick will be to identify the survivors who will thrive and maintain their economies of scale  in a less competitive landscape.  These will outperform a relatively flat market.

 

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#4) On April 02, 2009 at 8:11 AM, Gemini846 (89.88) wrote:

The discounts (rebates and dealer cash) are so steep right now that my wife and I were looking last night. We can get a couple of cars with enough discounts to eat all the negative equity on the car we just bought a year ago and have lower payments. Normally we'd be ludicris to try something like that, but thats the way it is.

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#5) On April 02, 2009 at 11:08 AM, TMFDeej (99.47) wrote:

Thanks for reading and commenting everyone.  I was going to make a pretty graph, but I'm completely swamped with work today so the raw data will have to do.  Here's the data that I was talking about above for anyone who's interested:

Month over month % change in U.S. light vehicle sales March vs. February

2009    24.5%  +168,826

2008    15%    +181,031

2007    23%    +287,305

2006    21%    +269,243

2005    26%    +322,772

2004    18%    +230,328

A statistically significant increase, especially considering the sales that were pulled likely pulled ahead in California...unfortunately I think not.

Deej

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#6) On April 02, 2009 at 11:23 AM, TMFDeej (99.47) wrote:

I meant to say statistically insignificant increase.  Amazing what a difference two letters can make.

Deej

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#7) On April 02, 2009 at 12:24 PM, bostoncelitcs (67.61) wrote:

American companies, like our citizens are going to have to get leaner and meaner.   It's time to "cut the fat".

 

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#8) On April 02, 2009 at 2:44 PM, QualityPicks (32.34) wrote:

Cool, I guess when CA removes the $10k credit for buying new homes, sales will spike too. But hey, maybe that is the way to incentivize the economy. Start raising taxes! and people will buy stuff before taxes rise :) :)

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#9) On April 08, 2009 at 7:45 PM, SharpSEO (67.88) wrote:

TDRH said:

"Unfortunately the fundamentals in the economy have not changed.   Real incomes cannot support past levels of consumption and without the previous leverage - contraction is necessary.  Either supply/capacity to produce has to be removed or prices need to fall to qualified demand levels."

Well said. Your statement is perfectly logical, but I wonder about the effect of inflation on that equation. I'm tempted to believe guys like Bill Fleckenstein who say that the gov will print, print, print. That screws up all the fundamentals.

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