Lousy economic conditions are leading many consumers to postpone car purchases. Lower levels of industry sales will increase the bleeding at GM and Chrysler.
One factor I have not seen mentioned much in any of the bailout discussions is whether we might see a reversal of the long-term trend of an increasing number of cars per license-holder in the US. There are a lot of two and three car households in the US that might figure out how to make do with fewer when replacement time rolls around.
From Bloomberg:
Ford Motor Co.’s U.S. sales tumbled 48 percent in February, Toyota Motor Corp.’s declined 40 percent and Nissan Motor Co.’s slid 37 percent as unemployment rose and consumer confidence weakened.
The figures may herald monthly sales that were the lowest for the industry in almost 27 years. Seven analysts in a Bloomberg survey estimated declines averaging 45 percent for General Motors Corp. and 50 percent for Chrysler LLC. Honda Motor Co. may post a 32 percent slide, based on three analysts…
“At this point, it’s not as much credit as it is a consumer confidence issue,” Al Castignetti, Nissan’s vice president of U.S. sales, said in an interview. “Even if you can afford the loan, people are not willing to take on the risk right now because of concern about jobs.”…
Automakers may report today that new vehicles sold at a seasonally adjusted annualized rate of 9.5 million cars and light trucks, according to the average estimate of 27 analysts and economists surveyed by Bloomberg. That rate would be the lowest since June 1982, when the U.S. had less than three-fourths as many licensed drivers.
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common sense.
the easiest way to increase your disposable income by $300-500 is not to trade in for a newer the car you just paid off. and you can save half as much or more from your insurance if you raise the deductible.
Amazingly, Volkswagen’s US sales are only down 17 % year-on-year.
Granted, they are not a major player. But they are in the process of building a new factory near Chattanooga. A rather unusual thing to do in the current climate, I would say, but I’m told they are still going ahead.
You have to either be made of money (and pay cash) or crazy to buy a car right now. Everyone’s looking over their shoulders and thinking “is my job next?” so they’re not buying any big ticket item right now, especially if it requires credit. Appliance sales, car sales, house repairs, etc, anything that normally requires credit, are all showing a drop in sales.
What do you think about the “Abwrackprämie” German government has included in its second economic stimulus?
Buy a new eco-friendly car and turn in your old one – which must be at least 9 years old. You get a 2500 Euro bonus from govt. Limited time only and limited number of bonuses available.
At least the newspaper read, that some carmakers need to work overtime to catch up with demand.
Factoring in the sales tax earned by govt through sale of otherwise not-sold cars, the “Abwrackprämie” might even break even on the govt balance sheet.
Ours is a car culture. Some people wear cars like clothing, like fashion statements. For them, they are seeing deals of a lifetime recently. Doesn’t mean they can afford the new car, but they must have it. That and a lot of young people buy new cars as rites of passage.
These behaviors will take a while to change. But, they will change. What might happen in the short term is a lot of these cars are returned to dealers on repo once Reality takes hold and folk have a nice freakout over their own prospects. Say, 6 months down the road.
This is a little off topic on this post, but really astounding.
Little Timmy was before the House today talking like its 1999. I mean this is like a “Twilight Zone” episode.
“Failure to reduce deficits to this level would result in higher interest rates as government borrowing crowds out private investment, leading to slower growth and lower living standards for Americans,” he said.
Simply amazing as the boys blow as hard as possible, using public money, to inflate their private debt bubble, they can still put this out in any seriousness.
Porn is looking better all the time!
Re 1: "I share your concern, I share your anger," Bernanke told the Senate Budget Committee. "It's a terrible situation, but we're not doing this to bail out AIG or their shareholders. We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."
Re 2: "The U.S. will be better off "moving aggressively" to solve economic problems because the alternative "could be a prolonged episode of economic stagnation," Bernanke said.
> I guess the point Bernake is making about AIG, Citi, BAC, Ford, GM and a few hundred other failing corporations, which are too big to fail, is that these failing businesses that burn cash, do not have earnings, exist because of accounting fraud and deception, are better off to go about the business of continuing to burn money and falsify earnings.
If these corporations fail, Americans may be denied the possibility of continuing to bail them out and to help artificially prop up the synthetic lifestyles that all the highly paid thieves have come to expect — now why the fuck would we want that and why would hope that Bernanke would be friends with fewer crooks? Why should we hope that Obama and ben and all the guys would be unpopular at country clubs and big fund raising events, where tax payer money can rotate in circles, from TARP-to-crook-to-politician-to-corporate gurus? These companies that are too big to fail have massive amounts of people that are experts in burning money, falsifying muniments, fabricating and engineering fraud and using their souls to help destroy America — why would we not want to finance these pirates and these shitbags that are the core cancer of this collapse? If we lose these people, it would be like cutting off a future of deception, distortion and disgusting ethical behavior — why would we do that???
Also see: Look at you. You used to be so cocky!
You were going to go out and conquer
the world! You once called me a
warped, frustrated old man. What are
you but a warped, frustrated young
man? A miserable little clerk crawling
in here on your hands and knees and
begging for help. No securities – no
stocks – no bonds – nothing but a
miserable little five hundred dollar
equity in a life insurance policy.
You're worth more dead than alive.
Why don't you go to the riff-raff
you love so much and ask them to let
you have eight thousand dollar? You
know why? Because they'd run you out
of town on a rail… But I'll tell
you what I'm going to do for you,
George. Since the state examiner is
still here, as a stockholder of the
Building and Loan, I'm going to swear
out a warrant for your arrest.
Misappropriation of funds –
manipulation – malfeasance…
Wow. GM really missed their estimates. And yet its stock didn't budget… in other words, GM stock = call option with a strike of $0. All you're buying is IV.
By the way, didn't see this in the reading list, Yves:
http://www.bloomberg.com/apps/news?pid=20601109&sid=alwTE0Z5.1EA&refer=home
… good read as an appendix to the private pension story linked earlier today. Wonder why both of these stories are Chicago-based? Journalists giving president O the middle finger?
Bendal said…
You have to either be made of money (and pay cash) …
That just shows how the country has changed. When I was a kid in a simple middle class neighborhood, I don’t think many people financed their cars. We surely didn’t.
By the way my mother told me I should never finance a car and I never did. But I’m not made of money, instead I drove used cars for years and learned about fixing them.
As people go back to that ethic the leveraged economy will crash and burn. But it’s still the right thing to do.
I wonder if Ben and Tim know that some of the very even keel, non tinfoil hat, centrists out there really wonder whether they are stupid or crooks. How can we let them know that this is the growing consensus among thinking individuals, that it has to be one or the other?
Fleet companies have to cut residual values drastically as consequence, leading to bigger holes in finance.
Regarding 1999, it is my firm belief that the esteemed theologians had it wrong when they tried to figure out when Jesus was born. If I am correct, he was born in 10 AD, not 10 years earlier, thus making this year 1999 and not 2009.
This would fit in with the end of the world, partying like it’s 1999 feeling we are all experiencing right now.
Furtermore, it is also my belief that either the Mayans made a similar mistake or the translators did, and the the world according to their calendar ends this year, and not 2012 or some other such year.
“Little Timmy was before the House today talking like its 1999. I mean this is like a “Twilight Zone” episode.”
These slugs have absolutely no clue and are certain to take us down for the count. The bought and paid-for Obama and his coterie of causal factors from the 1990s may find themselves one day sitting together with their Republican confederates at the defense table at the largest show trial staged since the demise of the Soviet Union. There’ll be a new constitution by that time, one that precludes public service by anyone holding office for 100 years prior to its promulgation and similarly for any former bureaucrat, and a fabulous new football stadium – a “shovel-ready” project, incidently – to hold the crowds intent on seeing justice done. Might we reserve you a seat?
“GM really missed their estimates. And yet its stock didn’t budge”
Rather than goodwill equity, companies now have ‘destroy the world equity.’
You know, we could repair bank balance sheets this way. Just count a few hundred billion of ‘destroy the world equity’ as a an asset for Citigroup.
I’ll bet this is how that Blowfeld did his accounting.
AIG Q4 2008 Earnings Call, 3/2/08
Ed Liddy says financial products group has 2 trillion of exposure, with 1 trillion of that to 12 major counterparties.
“The following is just a sampling of our global reach and our interconnectedness. We operate in more than 130 countries and jurisdictions and have approximately 74 million customers and policyholders. We are the world’s largest property casualty insurer. We are the largest provider of retirement savings for primary and secondary school teachers and healthcare workers. We have a $2 trillion financial products operation, with over $1 trillion of that amount concentrated with 12 major global financial institutions. We are one of the largest life insurance providers in the US and in Asia. We insure the property of 94% of the Fortune 500 companies. And we are the largest owner of airplanes in the world and the largest customer of Boeing and General Electric’s Aircraft Maintenance Division, among others.”
http://seekingalpha.com/article/123915-american-international-group-inc-q4-2008-earnings-call-transcript?page=-1
Yeah, AIG wins the Spectre prize for completing construction of the financial Death Star. $150B and still counting… Dr. Evil was relatively cheap for only wanting one hundred billion dollars.
Yves, I think the 2-3 car household is not going away anywhere soon. I’ve seen some sales models that are predicated on the per capita ownership, but that isn’t a very useful figure. People can keep cars a bit longer (2-3 years). We’re a mobile society and we need our cars.
I think what will be interesting to watch is people coming off of lease deals. Do they lease a new car, or just buy the old one (or buy another used replacement). Either is a big investment. The lease ties you into a 3 year deal, and saving 12-18K cash for a purchase of a used model also requires some planning ahead.
We seem to be stabilizing around an annualized rate of 8.5 to 10 million car sales a year (dec, jan and feb). That is down from 16 million. It is very sustainable but a lot of factories need to go.
I think the GM bailout plan was expecting something like 12 million sales a year. Cutting another 20-30% off that is not hard.
So, just an interesting knock-on effect, but what will the coming-of-age teenagers do if we go back to the 1 car family, when many of them live in isolated suburban neighborhoods, with no public transport, and no local access to jobs?
(Not that there are any jobs available.)
Used car market is actually doing ok. Dealers dumped used cars at $4 gas, now wholesale prices are actually increasing a little due to demand. The numbers for new cars are horrific however!
The issue is everything.. no traffic, can’t get approved, and tightening credit standards.
Are these year over year figures? I mean, if they’re off 53% from last February’s numbers, that suggests that sales dipped in December and stayed low, so this really isn’t news. If sales are off by 50% since January then we can kiss the car industry goodbye.
Lew Rockwell did the math on GM losses and said that GM lost $4000 on every car it sold last year. Is this a sustainable business plan? As long as we make up the losses, nothing will change. As long as GM, the unions, and bond-holders think we will keep bailing them, the hard decisions and cramdowns will never be made. If the Gov had walked away at the beginning, they might have tried to save themselves. Now they rely on lobbying to keep the party going.
I’m car shopping right now. the Chrysler dealership I went to said they normally have 35 days worth of new vans. Right now they have 9 months worth. People are only buying used cars right now.
This is potentially far more destabilizing: Japan using Forex reserves to subsidize exports.
They draw down reserves, offering financing to push manufactures, and neatly avoid a WTO issue because it is “export financing” rather than a subsidy.
If it takes off, China will follow suit very quickly.
Chinese banks have already moved heavily into LC financing to take up the slack from the collapse of LCs from Western lenders.
D
————
“Japan taps forex reserve in aid of firms overseas
Draw of $5 billion will be used to fund loan program for Japanese exporters”
http://www.marketwatch.com/news/story/Japan-taps-forex-reserve-aid/story.aspx?guid=%7BE599B939%2D8210%2D4ED5%2DA7F7%2D756F201011DC%7D
Obama says buy stocks?
Security Analysis: Be Careful Out There
J.P. Morgan Global Research, says:
We believe that 2009 will be a transformational year for microfinance. MFIs will have to refocus on their fundamentals, increase credit standards to maintain high asset quality, diversify their funding sources, close their currency mismatch and keep expenses on track. Investors will also push for higher corporate governance and public disclosure standard. The crisis should also be an opportunity for restructuring and consolidation in the sector. In 2009, we expect private transactions valuations to decrease towards 1x historical book value in the private market. However, the strong fundamentals of the microfinance industry and the commitment of public and private investors should bolster pricing going forward. MFIs with a solid funding base and strong assetquality should emerge stronger from this turbulence, and we can expect valuation to bounce back in 2010. The long-term outlook for equity investment in microfinanceremains positive.
Book value and earnings multiples are the most widely used valuation tools but we also recommend the residual income method. Relative valuation methods, such as price-to-book, and, to a lesser extent, price-to-earnings, multiples remain the most common valuation methods in microfinance equity. An absolute valuation method, the residual income method, would also be appropriate for MFIs because it combines the current book value with future earnings.
http://www.jpmorgan.com/directdoc/MFI_Research.pdf.
What are the knock-on effects of isolated teenagers in the suburbs without cars? Hey, that was me and my friends. Um, we all had a lot of sex with each other…..
Is there an ETF play for that?
Army of bankers moving in from Mexico:
Two of Mexico’s deadliest drug cartels have reached a combined force of 100,000 foot soldiers, wreaking havoc across the country and threatening U.S. border states, the U.S. Defense Department told The Washington Times.
Are these year over year figures?
Absolutely. And it’s still news because at this level of sales (9.5M SAAR) very few car companies can be profitable. I doubt F and GM can survive at all below 11M SAAR.
New figures have shown that in December, for the first time ever, there have been more cars sold in China than the United States.
A total of 735,000 automobiles were sold in China last month, compared to 656,976 vehicles were sold in the US.
The reason, analysts say, is that the slump in sales in China has been less severe than the slump in the US – not exactly a cause for celebration for carmakers here.Bloomberg.com: Japan
What do you think about the “Abwrackprämie” German government has included in its second economic stimulus?
It hasn’t been around long enough to know if it will stimulate sales or not. Also to a large degree it was done for ‘green’ reasons — i.e. in order to give car owners an incentive to replace their older, dirtier cars with new, cleaner ones. That’s why it is also known as the Umweltprämie, where Umwelt is the environment.
as a progressive it is deeply disheartening to see this administration handle the financial crisis- the loss of credibility makes the enactment of a progressive agenda more difficult. Or do they believe that we will forgive their bailing out the financiers by pretending to push a progressive agenda.
The question then becomes will Deloitte & Touche GM's auditor follow through by issuing a going concern notice as GM suggested they might. We know GM has said GM Europe will run out of cash in the second quarter and is urging European governments to step in. Brian Johnson from BarCap believes ceding some or all of its ownership and operational control of GM Europe, could lose important growth platforms in eastern Europe further questioning GM as a going concern. Since GM Europe own the technology for the under pinnings for its C and D class vehicles (Chevrolet Cruze and Mailbu) GM US may have to pull some of its lines depending on the separation.
Anonymous @ 4:55 wrote: “…wonder whether they are stupid or crooks.”
They are both. Crooks for taking our money, stupid in thinking we didn’t notice.
Are these year over year figures?
Absolutely. And it’s still news because at this level of sales (9.5M SAAR) very few car companies can be profitable. I doubt F and GM can survive at all below 11M SAAR.
I totally agree that the level of car sales is a big story, but I’m dubious that car sales failing to recover in January and February is news to anyone, considering how terribly we all knew the economy was doing.
I think the more interesting questions are how far car sales will fall (and it seems so far like the big drop was late last year and now we’re plateauing at that low level) and whether the low levels are a new long-term equilibrium (and thus GM is toast) or sales will rebound to some higher equilibrium once the crisis passes (and thus money spent keeping GM going might be a fair investment). I’m not sure this story does anything to answer those questions.