U.S. light vehicle sales appear to have bottomed
Will "cash for clunkers" ride to the rescue?
I have been bearish in the domestic auto industry for a while now, but as someone who works in the industry I am pleased to report that U.S. light vehicle sales seem to have bottomed. Sales for the month of April fell 34.4% year over year, but sales were only down something along the lines of 4.5% versus last month and sales almost always fall April versus March.
Year-to-date, U.S. light vehicle sales are down 37%. While I usually take anything that the "Big 3" domestic automakers say in their sales conference calls with a tremendous grain of salt, I actually agree with GM's vice president for sales Mark LeNeve when he said the following in this month's call:
"It's kind of like the anchor bouncing a long on the bottom of the lake. It has found bottom and it's tripping along a little bit. I think we have found the bottom in aggregate."
Now I have to attach a stipulation to my statement that sales have bottomed. It is difficult to say what impact a General Motors bankruptcy or the failure of Chrysler to emerge from bankruptcy (which I believe is a lot more possible than many do at this point) would have on U.S. auto sales. In the event of prolonged problems at these companies, which obviously are very possible, consumers might just shun vehicles from those companies and purchase vehicles from other manufacturers like Ford, the Japanese, or the Koreans. However, I suspect that prolonged problems at these companies would have a net negative impact on sales.
On the positive side, it sounds as though it is becoming increasingly likely that the government will pass some sort of "cash for trash" program that will provide significant tax credits to people with older vehicles who purchase newer, more fuel efficient ones. The passage of such a law would have a positive impact upon auto sales, so much so that it might even be able to temporarily counteract any lingering problems at GM and Chrysler. It is difficult to quantify just how much of an impact "cash for clunkers" would have on U.S. auto sales, but sales increased by 40% in Germany when it passed a similar plan several months ago.
For now I am very comfortable calling 9.5 to 10 million units on an annual basis the bottom for U.S. auto sales. I'm certainly not saying that we will see a quick recovery to the days where we sold 16 to 17 million units annually. Those days are gone for a while. I don't know what the new "normal" selling rate is, but it's somewhere between the "good old days" and the level that we're at right now.