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

Want to stay updated?

Keep up with us at twitter.com/rposluszny

Challenger Weighs In On Job Cuts

This past Wednesday, Challenger, Gray & Christmas released their much anticipated job cut data. The results were not too pleasing with terrifically awful trends.

Reaching levels not seen in nearly five years, 112,884 jobs were taken off the table in October. Leading the pack for the month of October were the following industries: financial, automotive, pharmaceutical, industrial goods, computer, and consumer products with each cutting 17,949; 15,692; 8,956; 8,252; 7,548; and 6,946 jobs, respectively.

Data: Challenger, Gray & Christmas
Charting: rp

October’s total is nearly 20 percent higher than September’s job cuts – that is huge! One question I am wondering is, how much worse will it become before it gets better?

After bouncing up and down this summer, it appears as though job cuts are trending upwards since August. This is tremendously disturbing, especially when year-over-year we see that cuts decreased steadily from August to December. With the economic contraction in full swing, it is likely cuts for November will remain above 95,000 for the month.

Data: Challenger, Gray & Christmas
Charting: rp

Looking at this year’s leaders, we see that finance holds the crown, automotive is trailing and picking up steam, while government/non-profit jobs remain at an arm’s length in a distant third.

Cuts in the finance sector, which have slowed down, will most likely continue on their deceleration while I expect the automotive sectors cuts to pick up tremendous steam.

Today, General Motors reported their quarter with an astounding net loss of $2.5 billion. What struck me was the $1.7 billion non-cash charge for the settlement concerning the elimination of post-65 salaried retiree healthcare coverage – ouch. You better believe there are more cuts coming down the line.

Ford, on the other hand, reported a mind-numbing $7.7 billion cash burn for the quarter. This is the kind of thing that makes you slam your head against a desk, full speed. Problem: efforts to counter this mounting burn is being offset by reduced sales. More cuts, more cuts and more cuts are in store for the near-term.

According to Federal Reserve policy-maker Dennis Lockhart, "The U.S. economy in September and October appeared to weaken dramatically ... Problems are now broad-based."

With this knowledge we can only expect auto sales to weaken further, continuing the downward trend and increasingly sputtering GM and F into further trouble. More on this later…

Data: Challenger, Gray & Christmas
Charting: rp

**2008 data is a prediction based upon the author's calculations

Now, assuming that all of that news was absorbed into your skull, let us move onto something which may be considered good news.

Considering the scale of the current economic retrenchment, we see that 2008 will likely not yield over 1.2 million job cuts. According to my calculations we will hover somewhere between 1.04 and 1.1 million cuts for the year. Essentially, we are living 2005 all over again.

The spin on this is it could be much worse, for instance, 2001 which had over 1.9 million job cuts. Only time will tell as November and December send 2008 on its merry way and into the history books.

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