August Sales Data A Fluke: One Year Later

One year ago, annualized auto sales data, SAAR, seemed hopeful going into September. Then, all hell broke loose. Sales continued to crater, the auto manufacturer’s outlook became bleak and sure enough the bankruptcies came.

I hate to say “I told you so,” but I did.

With a disaster on its hands, the current administration stepped up to the plate to offer an incentive program, similar to Germany’s, in order to boost the auto sector. Thankfully, it worked.

Now it appears that many are excited that the Cars for Clunkers program has done so well in the U.S., but they are forgetting last year’s “August rush.” This was one of the precursors to last September and October follies.

Source: Usingmyhead.com

For the past six months it has been eventful to watch the annualized sales index hover in between nine to 10 million. Thanks to the Clunker program, there was a last-minute boost in July sales and we have seen August rake in some serious gains.

July stepped up from those ghastly numbers and raised the SAAR to approximately 11.2 million, while August saw a significant jump to just over 14.5 million.

Here is the problem: these numbers are distorted and although the market seems to have an idea that there is a bit of inflation due to the incentive program, there is not a real sense of where the numbers will land. However, some analysts have made approximations.

In a BNET-syndicated Reuters article, Barclays analyst Brian Johnson checked in:

"We expect sales for the remainder of the year to fall well below August results, but believe momentum from the program as well as the stabilization in the economy and improvement in consumer confidence could boost sales above the 9.5 million average seen in the first half," Johnson said.

Source: Flickr

Another point to consider is that now that the CARS program is over and soon-to-be housing incentives will cease shortly, there could be a “veil” protecting the U.S. economy for the short-term. Once the effect from the programs wear off, could the economy begin to slip again?

After all, it does not appear that employers are adding jobs.

According to the latest from Challenger, Gray & Christmas, the leading outplacement consulting firm, although August showed the second lowest levels of job cuts for the year, it does not mean that the economy is out of the woods yet.

John Challenger, the chief executive officer of Challenger, Gray & Christmas, said in a recent press release, “The next four months will be very telling about the state of the job market. The final four months of the year are typically among the heaviest for downsizing.”

Challenger further insists that this does not necessarily mean 2010 will begin with robust hiring. If anything, it could make employers more cautious with their candidates. Essentially, the king of job cuts is hinting that we could have a slow recovery.

Taking these factors into consideration, it appears that we will see the SAAR data return to the 10 – 11 million range. Unfortunately, the economy is not strong enough to carry auto sales any higher, and without an incentive program, new car sales are going to remain hit relatively hard.

~nz

rp

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STUD or DUD: Mercedes-Benz's SLS AMG "Gullwing"

In a downbeat economy with crater-ing auto sales, you would not expect a serious performance machine, with a price tag to match, to spring up and debut itself now would you? Well, if you have plenty of disposable income and a desire for doors that go up, Mercedes-Benz can fulfill that void for you.

Source: Auto Bild

Introducing: the new SLS AMG "Gullwing."

Yet another retro-inspired design in 2009 unveils itself and I will be the first to admit that I am starting to become sort of jaded by this. Granted, I adore the original Gullwing, so, I do have a sincere appreciation for what this vehicle represents.

Source: Mercedes-Benz North America

Read more here.

rp

Automakers Stumble Creates Domino Effect

With the auto sales slowing to a halt and at some of the lowest levels in decades, the impact is beginning to reach far and wide.

For example, technology companies are starting to feel the hurt as their products, like GPS components, are no longer in demand.

Source: oneighturbo.com

Marketwatch reports:

"The shakeout from problems in the American auto industry is having a ripple effect across the country -- and straight into the high-tech sector.

The plunge in demand for new cars has led to desperate measures by some in the industry. One car dealer in Nebraska resorted to stealing its own cars, while another in Orange County, Calif., pleaded guilty to charges of bilking finance companies to purchase luxury vehicles. In Pennsylvania, a dealer set fire to some of his inventory."

Read more here.

rp

Automakers Face Catastrophic Week

It is the first week of the month and you know what that means.

New data.

Unfortunately, November's data has shed light into some of the worst numbers in years. That's right; the automakers have officially fallen off a cliff. Believe it.

The US SAAR Total Sales came back atrocious. The Challenger jobs data is disappointing, albeit, it was not expected to be an uplifting report.

Although many were hoping that Obama's victory would spur the markets, it appears after today's close that may not be the result. Granted, it is one day into Obama's victory -- do not jump to conclusions.

GM and F report Friday. I would not be surprised if one of the firms file for Chapter 11 and restructure themselves accordingly. The choice to be made is wait and prolong the pain or make this short and sweet. Kind of like taking off a band-aid.

More detail and predictions to follow.

rp

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

Challenger Report: Painting an Ugly Picture

With the financial industry in chaos, thank you Lehman Brothers, the auto sector is looking quite subdued right now.

But wait, there’s more.

Challenger, Gray & Christmas is the nation’s first and oldest outplacement consulting firm. You know what that means; these are the job cuts guys. The firm’s most recently released report displays some rubbish numbers for the auto industry, which lead August in job cuts.

To be more specific, automotive accounted for 17,233 job cuts - a nice chunk out of the 88,736 cuts for August. Year-to-date, the automotive industry has tallied up a significant 80,323 cuts. This is nearly an 83 percent increase year-over-year from 43,897 cuts in August 2007.

Data: Challenger, Gray & Christmas

When I spoke with John Challenger, CG&C’s Chief Executive Officer, in July, he did not seem to believe we would surpass one million cuts for the year. Granted, many things have changed since and it appears that the markets will breach that epic number.

In his latest report, Challenger said “We have not seen this level of summer job cutting since 2002, when the country was still struggling to recover in the wake of the 2001 recession and September 11.”

I assume that at the current pace we will reach somewhere in between the levels of 2002 and 2003; approximately 1.2-1.4 million job cuts for the year 2008. Please note the graph “Yearly Job Cuts.” You can see the level we are at year-to-date compared to previous year totals.

Data: Challenger, Gray & Christmas

Clearly, this will yield a sizable impact on the auto builders. Not only will they be shedding staff to compensate for their cash burns, the companies will also experience even poorer sales due to less consumer spending.

With this in mind, I reinforce my position on September’s US SAAR Total Sales data coming back weaker from August.

Get out your helmets. It is going to be a rough ride into 2009.

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