Will October represent the beginning of a cyclical recovery for the auto sector?
As probably the second largest item that consumers will purchase in their lives, after a home, to me auto sales are an excellent indicator of what shape the consumer is in and in turn where the U.S. economy, which is still heavily dependent upon consumer spending, is headed.
Over the past several months, the government's C.A.R.S. program aka "Cash for Clunkers" has clouded the auto sales picture, preventing anyone from getting an accurate read on what real consumer demand for light vehicles is in America right now. Now that the Clunkers-induced demand spike and the subsequent hangover caused by pulled-ahead sales and an unsustainably low level of inventory are over, we are going to be able to get a more accurate picture of what the true demand for light vehicles is like.
Yesterday Bank of America / Merril Lynch's auto analyst John Murphy (who was recently featured in a Barron's piece) published his forecast for U.S. auto sales in October. He believes that light vehicle sales will drop 7.5% year-over-year to seasonally adjusted annual rate (SAAR) of 10 million units. This is in line with the forecast of 9.5 to 10.0 million sales for 2009 that I issued when I correctly called the bottom of auto sales earlier this year.
A new start-up venture called TrueCar has begun forecasting U.S. auto sales as well, (link: TrueCar: Sequential Upswing Likely for October's New-Car Sales). TrueCar expects October light vehicle sales to increase 5% month-over-month from September to 784,897. This forecast is slightly more optimistic than bofa's, it represents a 5.9% year-over-year decline though for some reason TrueCar's SAAR is 9.8 (the SAAR is a bunch of garbage that's tainted by all sorts of government "factors" anyhow so it hardly matters).
I haven't personally come to any firm conclusion about what sales will be like in October yet. Heck there's still two weekends left in the official sales month and sales are always heavily weighted towards month-end so no one knows exactly what sales will be like for certain yet. After having several conversations with people in the industry, at this point I think that the above forecasts are as good as any.
It is reasonable to assume that sales will be a little better than last month, yet down slightly versus a year ago. The year-over year comps will continue to get easier towards the end of the year, so those percentages will begin to look better. However we are a long ways away from the bubble-fueled 17 million units + that we had become accustomed to in the industry. It will be a looooooooong time before we ever sales like that again.
Manufacturers have adjusted to the "new normal" level of auto sales. I don't see any additional significant layoffs in the industry. In fact, if anything automakers will begin to rehire workers as in my opinion they overreacted to the shocking decline in demand...which is a positive for the employment picture going forward.
Anyhow, those are my thoughts on the state of the auto industry this morning. I'd love to hear others comments, thoughts on auto sales, the industry in general, or whatever's on your mind this AM.