Analysis 2009 US Auto Sales Results

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Comments: 1

Tag: GM, Ford, Chrysler, Hyundai, Honda, Toyota, Nissan 2009, US Auto sales, SAAR, Cash for clunkers, leasing, fleet

January 12, 2010

Arguably the worst year in the history of the US automotive industry is over as sales crashed resulting from the financial meltdown in late 2008.  In 2009, GM and Chrysler along with many suppliers faced the bankruptcy judge with Ford missing its opportunity in court only by leveraging every asset it had to raise billions in cash back in 2006. In the second half of the year, the industry began to show signs of life as sales began to stabilize and began to improve slightly when comparing year-over-year results.  For the full year, auto sales in the US were down 21% compared to 2008 as total volume was at 10.4 million.  The industry’s performance reached levels not seen since the early 1980s recession when sales fell to 10.4 million in 1982.  If not for the US government’s Cash-for-Clunkers incentive program during the summer, total sales for the year may not have breached 10 million.

For the month of December, sales achieved a seasonally adjusted rate (SAAR) of 11.9 million, up from a low of 9.0 million in February.  December sales were the highest excluding August which benefited from Cash-for-Clunkers (Figure 1).  Auto sales have generally been weak since the start of the recession in late 2007, however, sales began to fall sharply in June 2008.  

 Figure 1: Seasonally Adjusted Annual Sales Rate by Month - Click to enlarge (Source Automotive News)

For the year, the two worst performing big manufacturers were GM and Chrysler which saw sales drop 30% and 36% respectively.  Hyundai was the only major manufacturers showing gains for the year at 8%.  Toyota, Honda, Nissan and Ford showed declines of 20% and in line with the industry average (See Table A in Appendix).

Specifically in December, sales improved but continue to be well below the annual sales highs of 17 million vehicles earlier in the decade.  Compared to last December total sales were up 15% with just over one million vehicles delivered.  Hyundai, Toyota and Ford outpaced industry gains with sales improving 42%, 32% and 33% respectively.  Chrysler and GM on the other hand were down 4% and 6%.

According to estimates by Edmunds the average manufacturer incentive spending was $2,542 per vehicle sold in December, down $167 from November, and down $320 from last December (Table 1).  GM lead the industry by spending just over $4,000 per vehicle which was down slightly from November.  Toyota has increased its marketing cost significantly over the past couple years.  In early 2007, Toyota was spending about $1,000 per vehicle on average according to Autodata.

Automaker Dec 2009 Nov 2009 Dec 2008
Chrysler $2,552 $3,146 $3,681
Ford  $2,994 $3,070 $3,985
GM $4,077 $4,343 $3,554
Honda  $1,282 $1,290 $1,209
Hyundai  $1,866 $2,013 $2,766
Nissan  $2,073 $2,147 $2,167
Toyota  $1,676 $1,775 $2,071
 Average $2,542 $2,709 $2,862
Table 1: Industry Marketing Incentives (Source Edmunds)
 
As credit became tight in the middle of 2008, manufacturer's finance units and banks began to cut back on leasings.  GM and Chrysler last year ceased leasing in the second half of the year.  In 2009, both companies only leased less than 2% of their total sales (Table 2).  In 2007 leasing accounted for 17.7% of all sales and in 2009 that dropped to just over 10% for the industry.  Earlier in the decade when consumer credit was easy subsidized leases inflated sales by making vehicles more affordable on a monthly basis.    According to Edmunds Toyota had a significant spike in leasing in October to 19.6% of total sales.  It should be caveated that there is some discrepancy on the magnitude of the leasing estimates depending on source.  Leasing accounted for nearly 27% of all new vehicle delieveries in 2007, according to a CNW Marketing Research estimate.  According to TrueCar in 2009, leasing accounted for 14% of transactions and expects the share of leasing to rise to 16% in 2010, matching the 2007 level.

Automaker 2006 2007 2008 2009
Chrysler 23.2% 21.0% 15.3% 1.1%
Ford 15.1% 17.0% 14.0% 5.1%
GM 17.0% 15.2% 10.5% 1.4%
Honda 14.5% 17.7% 17.1% 17.1%
Toyota 11.5% 11.1% 13.0% 12.2%
 Average
17.7% 17.7% 15.9% 10.5%
Table 2: Industry Lease Penetration (Source Edmunds

Analysis:
Overall the industry continues to remain very weak compared to historic highs.  The monthly sales rate has rebounded from last February’s low, however, the recovery continues to be slow.  Given the generally weak economic outlook, it is expected 2010 sales will come in between 11.2 to 12 million vehicles.  A relatively flat “U” shaped recovery for the industry appears to continue to hold.  Furthermore, January sales might slow compared to December as fleet purchases were likely pulled ahead to be booked in 2009 of 2010.

Beyond the “headline” improvement in sales, the overall market was not as strong as the percent increase over December 2008 first suggests.  For the most part, sales increased because of a sharp increase in sales to fleets.  December's fleet breakdown, according to estimates from Susan Docherty, GM’s sales and marketing chief,. Ford sold 35% of its vehicles to fleets, approximately 50% of Chrysler Group’s sales went to fleets, and Hyundai Group fleeted 22%.  GM and Toyota’s fleet sales were at 22% and 10% respectively.  It is impressive that GM held the line on fleet sales and maintained its plan to cap sales at around 25% of its sales volume.  In the past GM was well over 30% fleet.

Ford and Chrysler percent sales to fleet should raise red flags.  It must be remembered, weak retail performance masked by sharp increases to the fleet market helped mask the problems at the US auto companies over the past couple decades.  Chrysler’s retail sales in December at around 40,000 sales illustrates just how bad the situation is at the company.  At that pace the company is selling about a half million vehicles to real customers with heavy incentives.  Furthermore, this should help illustrate just how deep of a hole Chrysler is in and for lack of a better work, optimistic the company’s 5-year business plan is it presented back in early December.

Ford on the other hand is behaving like pre-bankruptcy GM as it dumped 35% of its volume into fleet.  The company continues to grab positive headlines as the only US auto company to avoid bankruptcy but digging into the quality of the numbers the company’s performance continues to be discouraging with the headlines being just an illusion.  It will be very discouraging if Ford maintains this level of fleet sales in the coming months as it will show a lack of discipline at the company as it dumps product into rental fleets to maintain market share and keep the plants running.  On the surface the relative fleet performance between GM and Ford shows the cleansing effect bankruptcy had at GM and the disadvantage now Ford.  

GM’s performance was impressive compared to its US counterparts.  Not only did GM not inflate its sales with fleet, it had all but wound down its non-core brands: Pontiac, HUMMER, Saab and Saturn.  In its sales conference call, GM management showed restraint in sticking with its restructuring plans as it continues to focus on the retail customer.  Not only does this illustrate the integrity of the company’s management commitment to profits over market share, it reinforces the structural changes bankruptcy gave the new company.  It should also be notes that for the year, Toyota did finally overtook GM in retail sales.

GM has reduced its inventory of Pontiac and Saturns with approximately 1,700 left in inventory after selling just over 13,000 vehicles in December as it phases out the brands.  According to Edmunds GM spent $5,925 and $5,882 per Saturn and Pontiac sold.  On the surface, GM’s incentive spending is a concern, however the Edmunds estimates is skewed by the phase out of Pontiac and Saturns’s inventory as well as incentives places on pickup and large sport utilities.  Edmunds noted that as a segment large SUVs accounted for $4,831 per vehicle.  This is important to understand with respect to GM as their fullsize truck and SUV fleet are still high cash flow vehicles with large margins even with what might appear to be excessive incentives.  GM in December sold over 22,000 fullsize utilities compared to 7,200 at Ford.  Furthermore, Edmunds incentive data does not appear to be out of line for the industry even at Ford and Chrysler.  It also must be accepted that the Edmunds marketing data is for retail purchases and does not factor in fleet deliveries.

Conclusion:
The US auto industry ended the worst year in its history with the close of 2009.  GM and Chrysler filed for bankruptcy and now partially owned by the US government with Ford arguably needing that bankruptcy just as bad as the other two.  In summary, GM with a clean balance sheet has discipline, Chrysler is desperately trying to be relevant by fleeting and Ford is exhibiting the worst of old GM by fleeting for revenue.  The Japanese manufacturers with solid residuals are subsidizing leases and the Hyundai Group is fleeting and offering marketing money to keep sales moving.  As the new year begins it appears all the auto manufacturers are trying to adjust to the "new normal" as sales remain depressed.  The Asia manufacturers continue to offer larger incentives today than they did a few years ago.  This further illustrates how weak the US market continues to be.  At one time, Toyota had a tremendous amount of pricing pressure which appears to have been reduced by the weak economy and possible backlash from the recent bad press related to the safety of their vehicles and poor showing in the Insurance Institute for Highway Safety consumer information safety program.

Finally, adding insult to injury, the close of the calander year also saw China become the largest single auto market in the world, overtaking the US.  China’s 2009 sales rose 46% over the previous year to 13.6 million compared with 10.4 million in the US.  The consolation is Chinese sales are inflated by their own government sponsored incentives.  The question is, how long will the government continue to inflate the bubble and are the manufacturers prepared for the day when it does?

Reference:

Wall Stree Journal, Market Data Center - December Automotive Sales Results

Appendix:

Automaker Dec. 2009 Dec. 2008 % Change 12 month 12 month % Change




2009 2008
BMW  23,647 21,663 9% 242,087 303,634 –20%
Chrysler  86,523 89,813 –4% 931,402 1,453,122 –36%
Daimler AG 20,904 20,866 0 205,199 249,750 –18%
Ford  183,701 138,325 33% 1,677,234 2,002,279 –16%
GM 207,538 220,030 –6% 2,071,749 2,954,819 –30%
Honda  107,143 86,085 24% 1,150,784 1,428,765 –19%
Hyundai 51,709 38,681 34% 731,991 675,139 8%
Isuzu 188 –100% 165 4,758 –97%
Jaguar Land Rover 4,841 3,632 33% 38,261 23,229 65%
Maserati 115 265 –57% 1,273 2,509 –49%
Mazda 18,255 17,965 2% 207,767 263,949 –21%
Mitsubishi 4,357 4,570 –5% 53,986 97,257 –44%
Nissan 73,404 62,101 18% 770,103 951,350 –19%
Porsche 2,118 2,154 –2% 19,696 26,035 –24%
Subaru 23,074 17,287 33% 216,652 187,699 15%
Suzuki 1,885 3,650 –48% 38,689 84,862 –54%
Toyota 187,860 141,949 32% 1,770,147 2,217,660 –20%
VW 29,582 25,442 16% 297,537 313,581 –5%
Other (estimate) 304 444 –32% 3,651 5,321 –31%
TOTAL 1,026,960 895,110 15% 10,428,373 13,245,718 –21%

Table A: December and 2009 US Auto Sales (Compiled by Automotive News)

 

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Comments
Tue Feb 02, 2010 7:41 pm
Name: Really | Comment: I would not be so quick to bash Ford's sale of vehicles to fleets. You are assuming that they were heavily discounted, an assumption that may be incorrect. I recall in a recent interview Jim Farley was talking about major fleet's growing interest in Ford vehicles not because of fleet discounts but residual values.

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