Today's Economic Indicator: Auto Sales are Improving aka U.S. Auto Sales Have Bottomed - Month 3
Several months ago I made the call that light vehicle sales in the United States had bottomed out, that sales for 2009 will not fall below will not go below 9.5 to 10 million units on an annual basis and that the market will very slowly recover from that level. A vocal minority here at CAPS scoffed at my prediction, but thus far things are playing out just as I had expected.
July will mark the third time that auto sales have been released since I made this prediction. I plan to report back on June's sales results some time tomorrow, but for now I can provide everyone with a few forecasts of what the month was like. Industry website Edmunds.com recently stated that they believe that June will be the first month in 2009 that auto sales will come in at an annual rate of 10 million units (see article: Forecasters see good news (by recession standards) in June auto sales). Similarly, the consulting firm J.D. Power and Associates, which has its ear firmly on the ground with its PIN dealer sales system, recently said that they're are seeing "marked improvement" in auto sales for June.
A number of manufacturers are echoing this sentiment. Ford Motor Company, which I wrote favorably about in this blog on March 30th when its stock was trading at $2.63/share...today it is at just under $6/share, also stated that U.S. auto sales could reach 10 million units on an annualized basis in June.
Ford's loquacious spokesperson George Pipas specifically said this about the state of the industry: "The underlying economic indicators, meaning fewer jobless claims, another month of somewhat higher levels of consumer confidence, suggest to us that the worst is behind us in terms of not only the economy ... but also that we may have seen the low point of auto sales."
In response to a bottoming in sales and increased market share, Ford announced that it is increasing production by more than 5% over the level that it announced earlier this month. And that production plan was already the company's first year-over-year quarterly production increase in North American in two years.
Evidence of the improving market for light vehicles is evident in used vehicles as well. The largest auctioner of used vehicles in the United States, Manheim was recently quoted as saying that the used vehicle market has shown surprising strength thus far in June (see article: Wholesale Market Shows Surprising June Strength). The company's used vehicle price index recently hit 109.1, marking the first year-over-year gain in the index since October 2007. The company's spokesperson, Tom Webb specifically said the following:
"The accelerated pace of wholesale price improvement in May continued in the first half of June. The continued rise in wholesale pricing has been the result of favorable supply/demand forces, an improvement in consumer confidence and better availability of retail financing...All of those forces will continue, or strengthen, in the months ahead."
Webb also cited used-vehicle unit sales figures that showed a 7.9% increase in May after a 6.8% rise in April and a forecast of an even stronger gain in June. Unfortunately the source of these sales figures is CNW Research and those guys are absolutely full of it. I would not be surprised in the least if they just made up the numbers that they report out of thin air. Needless to say, while I believe that these numbers are correct directionally I don't have a lot of faith in them.
Back to the new car side of things, Manheim's Webb believes that new vehicle sales will be around a 10 million annual rate in June.
I was optimistic that we had seen a bottom even before the Cash for Clunkers bill passed. Yes, it's a joke but it will definitely add some sales volume in the second half of the year. Similarly, rental car companies have started adding vehicles to their fleets again and fleet sales count as retail sales in the reported numbers.
As I have said in the past, things aren't all fluffy bunnies and roses in the industry right now. The days of U.S. sales of 16 to 17 million units annually are long gone and it is going to take a long time for us to return to that level. Sales do appear to have bottomed though and they have to bottom before they can slowly recover.
U.S. light vehicle sales appear to have bottomed
Auto Sales Have Bottomed - Month 2
What's Bad for GM & Chrysler is Good for Ford