It's Likely That Auto Sales Have Bottomed

With the economic and financial news in November and December about as grim as it's been for a long time (click on chart to enlarge), auto sales actually rose just a bit in December from their November levels (on a seasonally adjusted basis).

The headlines you'll see, though, will say that sales in December were down 37%, but that of course refers to the change over the preceding 12 months. The big drop in auto sales is now water under the bridge, and it occurred from January through September; that's practically ancient history by now. The current level of sales is abysmally low—virtually off the charts—relative to population and relative to GDP, so there is little reason to expect they'll drop much further. Financing might be tough for some, but interest rates and lease rates are soon going to be about as low as they've ever been. It wouldn't take much for sales activity to pick up significantly in the next several months.

Comments

[Daniel Herkes:]

But will the consumers be buying the same product mix that was available before? If two of the big care makers have idled their production will the pent-up demand go to another manufacturer? The industry, despite all the news lately, is not monolithic. The really weak players might just be forced to fold their tents.

Jan 06 05:59 AM

[Jonas:]

It is better to look at companies in general. It is them who buy a lot of the cars for their employees, and face the facts: investments like buying cars have stopped. Look at the transportation sector. In a normal year; 20% of all trucks are replaced by new ones. For 2009, they have placed fewer than 1% orders. Sames for the car industry. A car can drive 10 years and more. Companies can wait another year to replace the 4 year old ones and save money on expenses that are not needed.

Jan 06 06:18 AM

[John D:]

.... I'm thinking now that as North Americans lose their jobs, houses and a way to support their families and the fact that as TAX payers (in US & Canada) that now own a piece of GM /Chrysler (soon Ford as well) that they will see the advantage of BUYING North American and support their investments in those companies and help fix our ailing economies at the same time, hopefully the governments will also look more at EQUAL trade as opposed to FREE trade which has proven to do little more than take away the much needed JOBs & PROFITs from our economies. "BUY AN IMPORT AND DRIVE NORTH AMERICA INTO DEPRESSION"

Jan 06 08:40 AM

[jepittman:]

Personally I would not own an individual auto stock (I have toyed with buying Ford - I still think its interesting). However the most significant thing about the article is what putting in a low for auto sales means for the economy. It is a HUGE indication that things have stopped getting worse. When investors believe an economic trough is at hand they will 'look over the valley' and start buying risk assets again. I believe we are beginning to see this happening. If the author is correct and nov marked the low for auto sales then a bottom will very likely be in for the stock market.

Jan 06 04:39 PM