Batten Down the Hatches.

The bailout has been rejected. Say it again, but this time, think about what the implications will be. Are you curled up in a fetal position yet? You should be.

In a stiff vote of 205 to 228, the House sealed the deal on the $700 billion bailout package.

How can the leaders of our nation be so obtuse? Without this package, Armageddon has waltzed into our lives and will surely Riverdance on our chest – with spiked heels.

Was Warren Buffet’s warning to Congress not enough? The fact the markets have stumbled downwards for a year, doesn’t say anything? When the Canadian dollar reigns triumphant, we have a problem.

The House members should be ashamed of themselves. Although, they believe that they have saved the taxpayer and the greater good by screwing over Wall Street. I guess they do not believe in trickle-down economics. Life on Main Street is going to get harder.

In turn, we will see the struggling automotive industry get even worse. With the lack of credit availability and much tighter spending habits, it is unlikely we shall see a rise in auto sales.

The end of the week will bring results from September’s US SAAR auto sales. I am looking forward to the numbers and what they bring; however, I do not believe it will be positive given the macroeconomic environment. Even with the insane incentives, I do not think many buyers lined up this month.

Oil is under $100 as of press time, so, gas prices should lower within two weeks. Let’s see how that shoe drops.

In the meantime, I have constructed a tinfoil hat which should, in these times, protect against Armageddon visitors. I suggest you do the same if you intend to ride this one out.

rp

August SAAR data: A Fluke.

Although we are currently in one of the greatest eras for automobile development and innovation, sales are still tanking.

August’s US SAAR total sales have painted a reasonably grim picture. You may ask, “how?” or “why?” The approximate 1.2 million vehicle sales increase can be seen as artificial due to the incentives that you can find on 2008 models and gas guzzling sport utility vehicles.

Data: Bloomberg

A CNN report implied that due to oil’s recent pull back, currently near $106 per barrel, consumers are starting to get back into sport utility vehicles. Check the 8th and 9th paragraph of that story. I am not sure if I believe that as I do not see gas prices below $3.50 in my region; what would motivate someone to run out and buy a SUV?

Are the incentives that good? What does it matter if you pay your savings back in gas bills during the vested life of the vehicle?

Back to the SAAR data. Another crucial point which must be taken into consideration is that during this time of year, auto dealers are attempting to push out as many of the prior year’s cars out of their inventory before the new models are introduced. There is a seasonal re occurrence and you can see it on the Domestic Sales and Japanese Sales charts.

Data: Bloomberg

Last August, Domestics and Japanese autos saw a nice up-tick in their respective sales. This year, it appears that General Motors is seeing a similar trajectory while Ford and Chrysler are struggling. The Japanese are fairing well with similar trends in respect to last year.

Data: Bloomberg

Essentially, after taking into consideration the seasonality of August’s numbers, as well as the significant increase in incentives I can not foresee this year’s car sales to remain on this upward trend. I am calling August a fluke. It is extremely negative to see that Ford and Chrysler are struggling with sales this past month when there should have been an improvement in sales given the current incentive programs and 2008 model year liquidations.

Out of curiosity I inserted trend lines into these charts and it appears the only company which is doing well sales-wise is Honda. The company, known for its gas-sipping cars, recently surpassed the Ford F-150 as the most sold model in a given month - Three cheers for the Honda Civic. Pretty earth-shattering news for the car world.

If you want to see how bad things have gotten, look at the year-over-year numbers. They will turn anyone who is not squeamish a nice shade of green. US SAAR has declined nearly 16% while the big three, General Motors, Ford and Chrysler lost 20%, 25%, and 34%, respectively. The Japanese are doing much better albeit not well by any means; Toyota’s sales lost 9% YOY while Honda dropped 7% in sales.

The Domestics will have to keep their chin up during this time of distress and pray their new models and changes reverse their losses. Good luck, boys.

Watch for next month's SAAR data to downtrend, I can not see it rising or going flat.

rp

Good Times Are Here Again.

Perhaps it is a bad time for the automotive industry. Oh, wait! It is an awful time for the auto manufacturers. At least that is what the majority of the media is reporting. Taking a step back and observing, it seems as though the industry has been turned upside down, essentially.

The Germans are infatuated with flashy, swoopy, awkward designs (with the exception of Audi AG). The Japanese are creating fast, interesting vehicles. The American manufacturers are building decent looking, well-received cars. And, the Italians are trying to make a comeback stateside.

Last time I checked, it should appear more like this:

The Germans are infatuated with subtle, timeless designs. The Japanese are creating emotionless, boring vehicles. The American manufacturers are building unreliable garbage. And, the Italians are too busy in the mirror; they do not make it to the factory to build more than 500 units per year.

Oh-kay, oh-kay. You have got me. Oil prices are taking away sales, big time. Last month’s seasonally adjusted annual selling rate (SAAR) data showed total new car sales at 12.55 million units sold while we are use to seeing approximately 15-17 million units sold. SAAR gives a glimpse into what the year’s total production will be if demand remains constant into the year’s end. Clearly, July’s number reveals a poor year for sales.

Although many Wall Street research analysts have changed their views of American auto builders going bankrupt, due to oil’s “back down” from $147 a barrel, they remain to see a significant cash burn. It is essential these firms inject fresh capital into their respective balance sheets in order to make it past next year. Years of reliance on pig-like, high margin sport utility vehicles, which had automakers absolutely delusional (Porsche produced an SUV, is it any more clear than that?!), have harmed manufacturers due to the recent spike in energy costs affecting demand. Inventories are building up alongside the layoffs which keep rising, just take a look into the Challenger report.

Source: WTRG Economics

Did Ford whole-heartedly believe that consumers would want Expeditions with $3.50 gas? Did General Motors expect buyers to rush out to their nearest dealers to pick up the latest and greatest Yukons and Escalades when inflation came home to roost? Now, the manufacturers who were way off the curve have to retool their respective factories and rework their game plans. Rightfully so, this may paint a dull image into the future of the automotive industry as well as the American economy, but I beg to differ.

If you ask me, this must be the best period the auto industry has ever found itself in. Out are the old, gluttonous vehicles many have come to know and unfortunately love. In are sleeker, smaller and more practical cars. Miles-per-gallon numbers are on the rise! The shock from crude oil’s jump has lit a fire under the American’s and has motivated them to compete; this is good.

Look at the new Dodge Challenger and the upcoming Chevrolet Camaro. Although retro-inspired rehashes, these cars are exciting and I predict they will both sell very well. Note: the Camaro’s interior is one of the best American interiors I have seen in eons. It appears that Chevrolet will not drop the ball like Ford did with the Mustang concept, i.e. cost cutting.

Source: PimpMyChevy

With all of the incentives and deals on cars, especially with 2008 inventories dwindling due to 2009’s making their annual September/October debut, I would not be surprised to see August’s SAAR number see a rise. Could I be wrong? Absolutely. But, I am going to put more weight into the fact that with crude’s back track to teens we will see a small “snapback,” and some more volume pushed out dealer’s showroom floors.

It is good to see that the American’s have been pushed to act. This will fuel other foreign manufacturers to continue raising the bar and resist complacency. So, do you understand where I am coming from now?

rp