Ford, GM Expecting Lower Car Sales Than They Forecast

Both Ford (F) and GM (GM) are forecasting lower auto sales for 2009, both in a similar range. But Ford said on its December Sales Call that sales may be even lower than the range given:

New vehicle sales including medium and heavy trucks were running at a six month moving average of 16.3 million units through December of 2007. With the estimates of the November start at about 10.5 million units, that six month average will be in the 12.5 million unit range... How quickly and severely the business environment has changed.

We still do not see a near term resolution to the financial and economic crisis. Our assessment continues to be that consumers will reduce spending and increase saving as a precaution against further job and income losses and that this will extend the economic slowdown at least until the first half of next year.

That suggests vehicle sales running at or below the current sales pace in the coming months.

From GM's Global Sales Call:

In our viability plan that we submitted to Congress, we indicated a 12 million total vehicle baseline forecast in that viability plan, which was dated December 2, with a downside forecast in 2009 at 10.5 million units.

We are in the process, as you know, of submitting a second phase or a Phase 2 to the viability plan to Congress, and we will fine tune our forecast as we go forward but I would say the 10.5 to 12 million range is a pretty good range. And we are not going to appreciably change from that range.

Probably we're going to tend more towards the 12 million in the second half of the year, and in the first of the year we make 10, more towards the 10.5, because we still believe for all the reasons I stated that there were some positives from the Obama fiscal stimulus packing face toward the TARP et cetera and ourselves personally getting back in to game with GMAC and some of the negative talk behind this that occupy the air waves in November and December.

Comments

[billddrummer:]

Hi Judy,

Great coverage, thanks!

I think car sales will come in at fewer than 10 million units this year, and here's why:

1) Consumers who are looking to purchase new cars will still have trouble qualifying for affordable car loans. Even with the recent relaxiing of GMAC standards, the car loans granted will have higher interest rates because of risk aversion. As a consequence, buyers will look to clean used cars, rather than new ones, for satisfaction (re/CRMT)..

2) No compelling new models have been introduced for the 2009 model year from any of the domestic 3. The buzz surrounding the Chevy Volt is strong, but it won't be available until 2010, and will cost $40,000, far out of reach of many families.

3) Lease financing will still be tough, and will revert to the beginning of the lease phenomenon, when you needed sparkling clean credit to qualify.

4) Existing vehicles are lasting nearly 8 years, compared to 5 years at the beginning of the decade. The manufacturers have engineered long-lasting cars that don't need replacement as frequently, thus allowing buyers to hold off purchases until their personal balance sheets improve.

5) Gasoline will rise this year, and may reach $3.50/gallon by summer. If it only rises by $1/gallon I'll be pleasantly surprised. But with the domestic carmakers still emphasizing trucks and SUVs over fuel-efficiency, sales will crash for those segments in lockstep with higher fuel costs.

6) Uncertainty regarding employment will dampen demand for the entire year. People won't want to get into a 4-6 year auto contract if they feel their job is in jeopardy.

I think these factors will combine to suppress demand in 2009, and the projections announced in December 2008 will look wildly optimistic by August 2009.

That's my take on it. Keep up the great work!!!

ATB,

Bill

Jan 07 02:25 PM

[mrbill:]

"4) Existing vehicles are lasting nearly 8 years, compared to 5 years at the beginning of the decade."

Waaat? Every car I've owned, I've owned for ten or more years. Maybe you're talking about Ford or GM. I can assure you, foreign cars last much longer than five years.

"5) Gasoline will rise this year, and may reach $3.50/gallon by summer. If it only rises by $1/gallon I'll be pleasantly surprised. But with the domestic carmakers still emphasizing trucks and SUVs over fuel-efficiency, sales will crash for those segments in lockstep with higher fuel costs."

How do you know gas prices will rise to $3.50 a gallon by summer? I think oil will EVENTUALLY go higher, but what you're saying is just wishful thinking.

Jan 08 03:02 AM

[Mlynn:]

You must be kidding. I still own a 1999 Buick Regal that still runs great, gets excellent gas mileage and runs like a scalded dog when I need it to. I get 26 on the highway and 19 in town. Quit trying to knock down GM or Ford. If you take care of your automobiles they will last a long time. My 99 Buick Regal GS is black and looks like all the other jelly bean cars on the road today. Its style fits right in with today's Camrys and Altimas. They all tend to look alike anyway. Buy American and keep our economy running strong.

On Jan 08 03:02 AM mrgeneric wrote:

> "4) Existing vehicles are lasting nearly 8 years, compared to 5 years
> at the beginning of the decade."
>
> Waaat? Every car I've owned, I've owned for ten or more years. Maybe
> you're talking about Ford or GM. I can assure you, foreign cars last
> much longer than five years.
>
> "5) Gasoline will rise this year, and may reach $3.50/gallon by summer.
> If it only rises by $1/gallon I'll be pleasantly surprised. But with
> the domestic carmakers still emphasizing trucks and SUVs over fuel-efficiency,
> sales will crash for those segments in lockstep with higher fuel
> costs."
>
> How do you know gas prices will rise to $3.50 a gallon by summer?
> I think oil will EVENTUALLY go higher, but what you're saying is
> just wishful thinking.

Jan 08 09:56 AM

[billddrummer:]

Interesting debate.

For the record, I owned a 2001 Dodge Caravan that lasted 115,000 miles, a 2001 Mercury Topaz that blew up at 82,000 miles, and a 1989 Ford Fairmont that limped to 98,000 miles.

Until this year, I'd never owned an import, and I've had cars for the past 38 years.

I'm completely satisfied with my 2008 Kia Spectra. 300 miles/tank, 30 mpg in mixed driving (fully loaded), and powerful enough to handle short merges common in this area.

Jan 08 11:47 AM

[carguy:]

Bill,

Interesting comments, but I will agree with the gentleman below you...you have no idea what gas prices are going to do. And, I will tell you being in the business, gas prices going up would help us. It would push people to buy smaller cars.

Mr. Generic....your comment about foreign cars is biased and way off base. I work for Ford and that is fine that you praise foreign cars. That is your opinion. But if you want to imply that domestic cars do not last as long then you are dead wrong. For example I have a family that trades all of their vehicles in to me and the last two have been 15 year old Ford Taurus with 240k miles. So, tell me if you take care of your vehicle and do the regular maintenance, will it last longer than 5 years? I'd be willing to bet a large amount of money I could make any vehicle last 8 years with proper maintenance. I would go as far as saying I could do it with a Kia, the biggest pile of garbage manufactured! So, my point is it does not matter what the badging is, when it comes to lasting. Now if you want to talk fewest things wrong per 1000 miles then you may have an arguement. Get your facts straight. If you do not want to accept the domestic car companies because you just don't like them then thats fine. Don't hate them because its what all your buddies tell you. Support your country and the people that live in them. The foreign car companies may produce low wage jobs in the United States, but the profits are going overseas and into their technology.

Jan 08 01:10 PM

[billddrummer:]

Hi Judy,

A news article in Bloomberg suggests that consumers are keeping their cars longer before trading them, citing uncertainty in the job market and economic weakness nationwide:

bloomberg.com/apps/new...

According to the article, trade-ins are averaging more than 6 years old, 6 months older than before the fall 2008 financial meltdown.

The article also mentioned that the average price of new vehicles sold has dropped to $26,400, as customers buy smaller vehicles at the expense of full-sized pickups and SUVs.

I'm buttressing my case for a further falloff in vehicles sales.

Jan 09 03:46 PM

[31October:]

Re: mrgeneric: "Waaat? Every car I've owned, I've owned for ten or more years. Maybe you're talking about Ford or GM."

With all the problems Detroit faces, the worst are pernicious little comments like that. GM has the longest active registration periods of any make. My family has had GMs go 400K.

I can assure YOU, domestic cars last much longer than five years, too.

I neither work for nor drive a GM.

Jan 27 04:31 PM