2009 US Auto Sales May Have Reached Bottom - Slow Recovery Expected

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Comments: 1

Tag: US, Auto, Sales,  Forecast, 2009, GM, Chrysler, Bottom, Lows, Slow Recovery

May 20, 2009

Early last March I conducted an analysis of the relationship between fullsize pickup truck sales and new housing units started (See "A Going Concern" – The Global Auto Industry).  Based upon an early analysis presented by GM  a year ago it was shown there continues to be a direct relationship between new home construction and the sales of fullsize pickup trucks.  The  purpose of this analysis was to develop a level of confidence in estimating how far vehicle sales will drop and if there are any indications the auto market has reached bottom based upon additional months of data.  From GM's earlier analysis, historically sales of fullsize pickup trucks lead the recovery in vehicle sales with passenger vehicles following.  Pickup trucks have been shown to outpace the overall market in sales declines during a recession but also outpace the overall market in improved sales when the economy recovers.  With three additional months of data now available since the previous analsysis, the data was reevaluated for potential new insight.

In April, the seasonally adjusted annual sales rate for vehicle sales in the US was 9.5 million.  According to Automotive News this is up slightly from 9.3 million in March and 9.1 million in February (Figure 1).  The sales rate, however, continues to be down sharply from the same period last year when the industry pace was around 15 million.  

Figure 1: Seasonally Adjusted Annual Rate of US Vehicle Sales - Click to enlarge (Source: Automotive New)

Also in March a worst case was conducted comparing the current market conditions to a potential depression era like collapse in auto sales (See Forecast: US Auto Market May See Great Depression Like Collapse).  Based upon that hypothetical senario it appears a collapse of that magnitude is highly unlikely.  That analysis estimated if sales followed auto sales at the onset of the Great Depression, sales could fall to a sales rate of about 5 million vehicles. 

Building upon the earlier pickup truck sales versus housing starts analysis conducted in March the most recent data was employed to supplement the earlier findings.  Three months have passed since the earlier analysis which now includes April 2009.  The additional months of data  should be sufficient to identify any new emerging trends in the market conditions.  

As with the earlier analysis pickup truck data included those vehicles likely to be used for construction. This included the Ford F-Series, Dodge Ram, Chevrolet Silverado, GMC Sierra and Toyota Tundra. These vehicles make up close to 100% of the large pickup truck market.  Also the latest housing data published by the US Census was utilized including April 2009 (May 19, 2009 Press Release).

The data in Figure 2 continues to show a direct relationship between housing starts and pickup sales.  More importantly it appears that housing starts and pickup truck sales have stabilized based upon the trendlines.  However, the raw data for trucks and new construction diverged in March and April.  Truck sales continue to show some volatility as vehicle manufacturers heavily incentivize vehicles to generate sales and reduce inventory while new housing starts declined.  Incentives on fullsize pickup trucks have averaged between $4,000 to $7,000 over the past 12-months according to marketing promotion data compiled by Autodata.  It should be noted that new construction for April declined over the previous months but was consistent with January 2009.  Since the data was last generated, the slops of the tendlines for both housing starts and pickup sales have begun to flatten indicating the market may have bottomed.

 Figure 2: Relationship Between New Housing Construction and Pickup Truck Sales - Click to enlarge

Vehicle production in North America continues to down sharply compared to last year as vehicle production has been cut in half.  Since filing for Chapter 11 bankruptcy protection late last month, Chrysler has stopped all vehicle production in North America.  It is likely that GM will follow Chrysler in the bankruptcy in the next couple weeks and also cease all auto production.  As of early last March, manufacturers were projecting production cuts in the second half of the year of 36%.  Production cuts are up sharply from earlier estimates by the manufacturers.

Sales for the pickup trucks in this analysis dropped by 42% since the start of the year (Chart 1).  However as an aggregate, production was only cut by about 30% (Chart 1).   The end result is manufacturers are sitting on excess inventory of pickup trucks even after improved sales in March and April.  According to Automotive news, as of May 1, dealers have 121 days of Dodge Rams, 109 days of F-Series, 132 days of Silverados and 173 days supply of Sierras in inventory (Toyota does not report Tundra inventory data).  The generally accepted healthy inventory level is about 60 days worth of supply.  From the data it would also appear that GM tried to generate revenue by maintianing production levels with its high profit pickups to maintain some cash while its future was decided by the government.  The company books revenue at the time of vehicle is manufactured not at sale to the final consumer.

 


Jan. -  Jan. -  Percent

April 2009

April 2008

Change
Dodge Ram 64,522 93,068 -30.7
Ford F-Series 110,336 192,951 -42.8
GM Silverado/Sierra 124,501 217,413 -42.7
Toyota Tundra  24,505 54,134 -54.7
Total 323,864 557,566 -41.9

  Chart 1: 2009 Year-to-Date Fullsize Pickup Sales (Source Automotive News)

 Jan. 1 - Jan. 1 - Percent

May 16, 2009May 16, 2008Change
Dodge Ram79,978119,727-33.2
Ford F-Series190,676319,675-40.4
GM Silverado/Sierra199,452209,417-4.8
Toyota Tundra 22,42684,974-73.6
Total492,532733,793-32.9

Chart 2: 2009 Year-to-Date Fullsize Pickup Production (Source Automotive News)

Conclusion

There is enough evidence to suggest that automobile sales in the US have hit bottom.  This does not assume that the Chrysler bankruptcy and likely GM Chapter 11 bankruptcy filing will not have a negative effect on the overall sales rate.  Specifically going forward a GM bankruptcy could seriously disrupt the sales total.  However, with both GM and Chrysler in bankruptcy, there is a good chance the rest of the industry could see sales improve as buyers shop companies that are perceived to be more viable even if the overall market maybe at a slightly lower rate.  It is very possible that the sales rate could drop in the near term below a seasonally adjusted rate of 9 million because of the situation at GM and Chrysler but should at least stabilize or improve for the rest of the industry.  All things being equal the overall market does appear to have reached its low independent of some fluctuation.

Moving forward I certainly do not foresee a strong recovery any time soon as GM and Chrysler will continue to depress the overall industry total.  Historically the late spring and early summer months are the strongest for sales and any signs of a recovery should be apparent during this period. At the earliest, year-over-year sales could improve in October when the sales rate was 10.9 million for the month in 2008. The market may have stabilized but there are not any clear indications it will improve significantly.  It should be noted that fullsize pickup trucks sales did improve in March and April from preceeding months, however, the overall statistical trend is flat.  More importantly, it is difficult to put much faith in March and April sales improvements because of the heavy incentives manufacturers placed on pickups.  Also in the same months, new home construction continued to decline but stabilized at January's level.  Until new construction begins to rebound, pickup truck sales will remain relatively flat which is a further indication auto sales should follow accordingly.  It would seem, the worst may be behind the industry excluding GM and Chrysler. 

Every few months I plan to update this analysis for any clear signs of improvement in industry sales.  With Chrysler and possibly GM under bankruptcy protection, the data should be interesting going forward.


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Comments
Thu May 21, 2009 11:27 am
Name: haypops | Comment: I read a report that the wholesale price of used late model pickup trucks was rising. Likewise, my son inlaw (car hauler) is seeing increased activity of used pickup trucks out of CA auctins going to the midwest.

Thanks for the continued efforts at this site.

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