2008 US Auto Sales Summary – The Gloom to Continue in 2009

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Comments: 2
January 7, 2008

Monday, manufacturers reported US sales results for December closing out the worst year since 1991. As an industry, sales were down almost 36% for the month with total vehicles sold just less than 900,000 and overall sales for the year down 18% for a total of 13.2 million vehicles (Figure 1). In one year, nearly 3,000,000 vehicles sales disappeared in the US. That is like GM or both Honda and Chrysler consciously deciding last January to stop selling vehicles.

Compared to November sales were up from 750,000 vehicles, however, December is historically a stronger month because of all the end of year deals. According to Edmunds who tracks industry market data, the average incentive rose to $2,902 per vehicle in December, up 8 percent from November and 18 percent from December 2007. For both November and December sales were down about 35% compared to the same period in 2007.

Even with the hefty incentives in places, sales show no indications of improving. The average incentive offered per vehicle by the major manufacturers is as follows: Ford $4,029, Chrysler $3,667, GM $3,661, Nissan $2,251, Toyota $1,995 and Honda $1,218.

Of the major manufacturers, Chrysler’s drop was the most severe at over 50% for the month and 30% for the year. GM and Ford were down each just over 30% for the month and slightly over 20% for the year. Given GM’s sales were down 41% in November, December’s results should be considered encouraging and a sign GM’s action to line up banks and credit unions other than GMAC to offer credit to customers and dealers was successful.

The larger Japanese manufacturers did not fair any better for the months with Honda, Toyota and Nissan down 35%, 37% and 31% respectively. To illustrate the severity of the weakness in the market, Toyota increased its incentives by 87 percent compared to December 2007 and yet its sales still dropped 36.7%. This is significant in that, Toyota generally does not offer large incentives to sell its product. The brand has excellent price elasticity and in the past when large incentives were offered, the company sales improved significantly with respect to the rest of the market.

As I discussed a few weeks ago, the Japanese manufacturers already announced steep production cuts (Red Ink Warning – The Auto Slump is Global Including the Imminent Fallout) to reduce inventories in the US. The US auto companies have also announced significant production cuts as well.

The German manufacturers faired better than average with BMW the exception as its sales dropped 36% for the month. Daimler and VW were down 24% and 13% accordingly.

The surprise for the month was Hyundai saw a Chrysler like sales tumble of 45%. Also of interest were the year end results for Mitsubishi and Suzuki. The long-term viability of both manufacturers in the US is put into question if sales were to remain under 100,000 vehicles. On the surface it would appear that brands and vehicles that attract first-time buyers faced the sharpest decreases in sales, which one can attribute to the tightening of credit for those with either no or a poor credit history.

 


Dec. Dec. Dec. 12 mos. 12 mos. Pct.
Manufacturer 2008 2007 chng. 2008 2007 chng.
Aston Martin 100 172 –41.9% 1,600 1,202 33.1%
BMW Group 21,648 33,797 –35.9% 303,604 336,265 –9.7%
Chrysler LLC 89,813 191,423 –53.1% 1,453,122 2,076,650 –30.0%
Daimler AG 20,878 27,287 –23.5% 249,750 253,433 –1.5%
Ford Motor Co. 138,325 210,855 –34.4% 2,002,279 2,559,259 –21.8%
General Motors 220,030 319,837 –31.2% 2,954,819 3,822,611 –22.7%
American Honda 86,085 131,792 –34.7% 1,428,765 1,551,542 –7.9%
Hyundai Group 38,681 70,555 –45.2% 675,139 772,482 –12.6%
Isuzu 188 492 –61.8% 4,758 7,098 –33.0%
Mazda 17,965 24,556 –26.8% 263,949 295,737 –10.7%
Mitsubishi 4,570 5,904 –22.6% 97,257 128,993 –24.6%
Nissan 62,101 89,555 –30.7% 951,350 1,068,237 –10.9%
Porsche 2,154 2,891 –25.5% 26,035 34,693 –25.0%
Subaru 17,287 18,739 –7.7% 187,699 187,208 0.3%
Suzuki 3,650 7,361 –50.4% 84,865 101,884 –16.7%
Toyota 141,949 224,399 –36.7% 2,217,660 2,620,825 –15.4%
VW 25,442 29,359 –13.3% 313,581 328,068 –4.4%
Other (estimate) 655 783 –16.3% 7,691 7,877 –2.4%
TOTAL 831,225 1,287,285 –35.4% 12,199,970 14,983,961 –18.6%

Figure 1: 2008 US Automobile Sale (Source Automotive News)

As I prefer to look at sales trends Figure 2, presents the December 2008 sales results compared to 2006. As I expected, GM and Ford saw the largest declines as both companies were already experiencing consumers shift from cars to truck. Nissan at the time had older product and was awaiting fresh designs which explains it slightly higher decrease. Otherwise, the data is only presented for completeness.

 


Dec. Dec Pct. Pct.
Manufacturer 2008 2006 Change 2006 Change 2007
General Motors 220,030 334,501 -34.2% –31.2%
Ford Motor Co. 138,325 231,712 -40.3% –34.4%
Chrysler LLC 89,813 190,415 -52.8% –53.1%
American Honda 86,085 131,778 -34.7% –34.7%
Toyota 141,949 228,322 -37.8% –36.7%
Nissan 62,101 91,775 -32.3% –30.7%
Hyundai Group 38,681 67,369 -42.6% –45.2%

Figure 2: 2008 Sales Results Compared To 2006

Not only are auto sales being dampened by the sour mood of retail consumers, the rental fleet market for new vehicles has weakened. In 2008, rental companies bought 1.5 million new cars and trucks which were down from 1.9 million in 2007. This downward trend is expected to continue going into 2009. Rental fleet sales have ranged from a high of 1.9 million vehicles in 2007 to a low of 1.6 million in 1997 (See Auto Rental News Chart). Sales to rental companies account for 15% of new cars and trucks built by GM, Ford and Chrysler (August 2008 Mid-Year Registrations).

In recent years, the US auto manufacturers have been attempting to reduce their share of the rental car market because of low margins and the negative effect on resale values for its retail customers. However, reduced demand at the rental companies is adding further pressure on the automakers and it takes away the option for them to dump vehicles onto the market to generate needed cash flow.

 


2008 2007 Pct.
Manufacturer Market Share Market Share Change
General Motors 30.6% 33.2% -22.0%
Ford Motor Co. 21.8% 25.0% -26.1%
Chrysler LLC 17.0% 17.0% -15.9%
Toyota 11.1% 8.3% 12.8%
Hyundai 5.1% 4.1% 5.1%
Kia 4.8% 3.3% 20.5%
Nissan 4.9% 5.6% -26.8%
Mazda 2.3% 2.0% -5.4%
Suzuki 1.7% 7.0% 110.9%
Subaru 0.7% 7.0% -15.1%
Total

-15.5%

Figure 3: Rental Sales Market Share, y-t-d through September 2008 (Source Auto Rental News)

Market Analysis:
The most surprising finding in the December sales results was Toyota did not have the ability to move the market with its pricing pressure and customer goodwill. In October, Toyota began to offer 0% financing (Just What GM, Ford and Chrysler Needs - Pricing Pressure From Toyota). For the month, the incentives provided a boost to sales given the greater market downturn, aiding to reduce its overall drop to 23% compared to the industry average of 32%. At the time, it interesting that Toyota’s drop was not less than what was posted and was the first indication the market is in worse shape than it first appeared.

Given the large amount of incentives Toyota offered in December resulting in sales being down slightly greater than the industry average is telling about the economic stiutation. To illustrate my point, the US Federal Reserve short term interest rate target has been reduced to “0%” to stimulate the economy. It has reached this points after almost a year and a half of rate decrease and yet the US economy continues to sputter. Toyota offering greater and greater incentives is like the Federal Reserve dropping interest rates and little sales stimulus to show for it. Just like the Federal Reserve, Toyota appears to be out of “ammo” to jump start sales.

I do not believe we have reached the nadir of the automotive downturn and it could be 3-to-6 months before there is any indication that the situations is beginning to improve. Traditionally, January is a slow month and if the sales rate, adjusted for the season is similar to the last couple months, I would call it a wash. At this point in time, to make any forecast about a possible recovery would be premature.

The manufacturers, particularly the US companies do not even have the option of dumping product in significant numbers into the rental fleet.

Bailout Status:
Just before the start of the New Year, the US Treasury announced GM received the first $4 billion of a promised $9.4 billion bridge loan. GM will receive the remaining money in mid-January. A couple days after GM received its first installment, it was announced Chrysler received its $4 billion.

On December 24th, the finance arm of GM, co-owned with Chrysler’s parent company Cerberus Capital Management was awarded bank holding status. Furthermore, the Treasury Department announced GMAC will receive a $6 billion cash infusion as part of the $700 billion Troubled Asset Relief Program.

As part of the agreement, the US Treasury will purchase $5 billion in preferred shares of GMAC. The preferred shares owned by the government equal about 17 percent of GMAC's equity. The deal also included GM receiving an additional $1 billion to invest in GMAC.

As part of GMAC's conversion to a bank holding company, the Federal Reserve is requiring GM and Cerberus to reduce their stakes in the company. Currently, Cerberus owns 51% of GMAC with GM owning the remaining 49%. Cerberus is obligated to reduce its voting power to no more than 14.9% of GMAC, although it may maintain up to 33% of the company's equity. However, GM must cut its voting share and equity in GMAC to no more than 10% and GMAC as a bank holding company will eventually not be an exclusive lender to GM.

As a direct result of the government cash infusion GMAC stated it would reduce previous restrictions on auto loans and ease credit requirements. In October, GMAC restricted loans to consumer with FICO scores greater than 700 (The Reckoning - GM, Chrysler & Cerberus Angle to Survive the 2008 Collapse). Assuming there is any public demand for vehicles, the improved availability of credit should help improve sales at GM. At this time, I believe, the GMAC resolution will give GM a needed tool to help drive the market forward. But much like Toyota's attempt to offer incentives it may be futile.

The many complex issues to put GM and GMAC on a better financial footing are quickly being resolved. The UAW also announced it will prepare to begin negotiations with GM such that the company can meet the terms of the government loans (The GM and Chrysler Bailout: Approved).

This is just the beginning, and GM, GMAC and the UAW have a lot of work to get done even as the economic conditions continue to deteriorate. Auto sales do not appear to have hit bottom and may still get worse. I know GM has tightened the purse strings to conserve every penny including turning off their employees’ voice mail to save money.

As for Chrysler, all I can say is the company received its life line. It is expected the money received will go toward debt owed suppliers. Currently Chrysler’s manufacturing is shut down and the company is not building vehicles. Last month Chrysler announced production will cease at 30 plants at least until January 19th. With no production, there is little cash flow. My question is, once Chrysler pays off its suppliers, will it have enough money to restart the operations because the suppliers will require cash on delivery for purchased parts?

Entire contents © 2008 The Automotive Lyceum All Rights Reserved

 



Comments
Sun Jan 11, 2009 2:05 pm
Name: haypops | Comment: Media experts are frequently calling on the auto manufactures to concentrate on their core business. Do you think greater diversification would have made this time easier?

Sun Jan 11, 2009 6:41 pmDepends on the company but when the carpet gets pulled from under the whole industry it is tough. In a consumer driven recession like the one we are in, there are few areas of the market that will escape the pain.

My gut instinct tell me Europe is going to get hurt hard. Given how thin margins are there already, I believe it is possible the auto companies there will be wards of the state soon enough.

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