Auto Sales Continue to Slide Downhill

Please sir, can I have some more?-- Oliver Twist (or Stewie from Family Guy, depending on your knowledge of the classics)

Everyone knew that January was going to be a horrible month, but seriously, did anyone expect it to be this bad? I did not. I expected the incentive programs that auto makers are currently running to give some sort of bump up to the sales results. The scary thing is what if these programs actually did give the results a boost? The annual run rate for sales during January is 9.57 million vehicles. That's the lowest level since 1982.

The chart above outlines the total monthly auto sales compared to January 2008 as well as the total change for 2008. The following chart demonstrates the month to month figures and the steady downtrend, in addition, it shows the drastic declines compared to last year.

Looking back through the results, the extent of the drop was the only surprising aspect of the month. Many consumers were using the lack of available credit as a reason not to buy a car, but GMAC received $6 billion during the month in an attempt by the federal government to free up more capital. In addition, the company originated 5,000 loans (which doesn't seem like a lot, but it is a sequential improvement).

These dismal numbers for auto manufacturers used to be just an American problem, with Detroit's Big Three the only ones with issues; however, the American contagion has clearly spread to the foreign automakers in America as well as the markets overseas. Toyota (TM), Honda (HMC), even Daimler (DAI), and Volkswagen (VLKAY) saw big drops in sales during the month in America, and there doesn't seem to be an end in sight. Many companies including Toyota, Honda, and BMW have announced production cutbacks in recent months.

General Motors (GM) and Chrysler have already received tax payer help. I felt it would be necessary, but the method through which it was done seems completely idiotic. The government is giving these companies only what they need to not fail; nothing to help fix the problem. The government is playing not to lose instead of to win, and none of the nation's problems will be solved like this. If there are any football fans out there, I am watching the moves by Congress and thinking of the prevent defense when your team is up by 14 points in the fourth quarter. They don't want to give up the big play, but 15 and 20 yard plays add up fast into a touchdown and then you are really nervous sitting on the couch.

Ford (F) reported earnings last week and posted the worst quarterly loss in its history, and in addition, it drew down the final $10.1 billion of its credit facility. Basically, the company made this move its last ditch effort to avoid government help. The disappointing part is that I don't think it will be enough to stave off Ford going to the government hat in hand asking for help. It will be interesting to see how Ford blames the economy and auto sales and says how its plan is still on track to be breakeven by 2010.

Over the past few months, the automakers have received a fair share of criticism, but the one I like the most (completely sarcastic of course) is why haven't the American auto makers conducted business in a similar fashion as Toyota and Honda? Hasn't that been the point over the past three years, to try and remodel the operating structure to be more competitive with the foreign auto manufacturers?

Alas, all companies are now in the same boat and the resurrection of the American auto industry will only come with an improvement in the economy. There are still many more plants that need to be closed. I feel bad for the workers at those plants, but for General Motors and Ford to survive, the production levels need to be adjusted for sales of 12 million vehicles down from the 16 million vehicle level that the industry is currently producing.

As we stated previously, we believe that Ford will eventually make its way to the government's doorstep. On an investment level, we would not take long positions into any of the American automakers. We still have a SELL recommendation on Toyota (TM). Our favorites in the industry are still Daimler (DAI) and Volkswagen (VLKAY), but we would wait for slight pullbacks to begin to build a larger position.

Disclosure: David Silver, is a Research Analyst for Wall Street Strategies (www.wstreet.com) covering companies in the Transports, Autos, and Beverage sectors.

Comments

[303820:]

The American people need jobs.... good paying jobs! As long as our government and wall street keep on lowering wages and shipping jobs over seas we'll never get out of this mess!
You can not take my job away and then expect me to buy!

We need the politicos in Washington to have COGLIONES big enough to say to corporate America...you sell here...you build it here!

Feb 08 08:51 AM

[Dave Wrixon:]

Commercial success relies on making the right product at the right price, with the all the guarantees of inherent quality.

I don't think it is going to be possible for the big three to compete within a meaningful time frame.

The patient is already clinically dead and on life-support. Trying to pump the his veins full of glucose is not going to work. What he needed was more exercise and a healthy diet before the cardiac arrest. All you are doing is using critically scarce resources on lost causes which will prevent other potentially viable patients being saved.

Feb 08 09:13 AM

[gybognarjr:]

I mostly agree with your assessment, but I am not as forgiving as you are. I would not have given GM and Chrysler a single penny, I would let them fail, Ford would follow them. I would like to see the UAW disappear and the management of these companies to be left out on the pasture and be the target of class action lawsuits and jailed for life. (Same for the bank CEO's) Let's have a shorter depression, a complete and new reorganization of our banking system with strict government controls and new business models for private industry. More people would suffer for a shorter time and then have a long and rising prosperous future with the criminals cast away and a system fixed.
Now we are prolonging a deep recession and nurturing the same criminals, rewarding failure and postpone the inevitable depression and collapse of a credit based monetary system and the multinational criminal business organizations. The people were sold out to the multi nationals as raw resources and before our lives can improve, we have to return to responsible and self respecting, sovereign nations, governing business. It is governments that should rule nations not businesses abusing people, buying politicians and law.

Feb 08 09:35 AM

[a. palmer jr.:]

Along with current layoffs of our few manufacturing businesses left and with the job losses to overseas concerns, we have several layoffs in the business sector as well. My question is now, where are the politicians going to get all this money to give away in the future with our tax base eroding daily? We don't pay income taxes if we don't work and we don't pay property taxes if our homes are repossessed. No wonder our President is anxious to get everyone back to work. Congress still haven't a clue, though.

Feb 08 09:42 AM

[notsosmart:]

just pieces of metal to get there from here(& plastic) that lose a fortune in value the minute you drive it over the threshold & out of the dealership. i know its hard to believe but i drive a 1981 caprice(paid cash) & it doesnt have an ass warmer or a heated steering wheel. i think the sheeples are waking up. this author makes no mention of subaru & hayundi that increased their sales. a good no nonsense car that gives you 40 mi to gal. with a 100,000 mi, 10 yr warranty(proper maintanance) @ a fair price along with credit to those worthy & you might fix this mess.the throw away concept may be comimg to an end.we got to the habit of throwing out good useful stuff along with good useful employees. talk about chickens coming home to roost.

Feb 08 09:55 AM

[Georgen:]

Well-run companies prosper while poorly run ones perish--its part of the dynamic nature of capitalism. Companies that once revolutionized and dominated new industries – for example, Xerox in copiers or Polaroid in instant photography – have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. Schumpeter called it "creative destruction"
Toyota, et. al. will survive because of their flexible cost structure. Chapter 11 would solve the Detroit 3 union problem and other cost issues, including the bloated dealer network. The objection to Chapter 11 has been the loss of customer confidence. It couldn't get any worse, so it is time to bite the bullet.

Feb 08 10:01 AM

[flipspiceland:]

Anyone who is shocked about the poor auto sales numbers lives in a bubble.

Take your own most pessimistic stance, factor in the bullshit the politicians are telling us, add in the gross incompetence, vanity, and utter lack of responsibility of multimillion dollar salaried and perked talking heads that pass for CEOs (ask yoursef how Nardelli got that job -(AND 250,000,000 goodbye money at Chrysler after ruining Home Depots' shareholders,What in hell is up with that?--you will find lawyers and agents selling him to others like a branded toothpaste).

Or you could just walk into any of a dozen auto dealerships and se that they are selling few cars. IBWA --invest by walking around).

Feb 08 10:15 AM

[ex GM emp:]

Bingo. We are basically just becoming a colony of China, India and other third world countries. Ship raw materials to them and receive finished goods in return. That doesn't seem like a good way to further the economy. The baby boomers have seen the zenith of U.S. economic power.

On Feb 08 09:42 AM a. palmer jr. wrote:

> Along with current layoffs of our few manufacturing businesses left
> and with the job losses to overseas concerns, we have several layoffs
> in the business sector as well. My question is now, where are the
> politicians going to get all this money to give away in the future
> with our tax base eroding daily? We don't pay income taxes if we
> don't work and we don't pay property taxes if our homes are repossessed.
> No wonder our President is anxious to get everyone back to work.
> Congress still haven't a clue, though.

Feb 08 10:53 AM

[303820:]

I'm sick and tired of you anti union, anti American and anti workers...It's not the well payed working stiffs of this country that's destroying it or Detroit auto industry...The contrary...it's the wal mart wages that corporate America has created... Low wages DO NOT have the purchase power that's needed to keep the economy strong...You the anti union hypocrites are making a third world country out of America...SHAME ON YOU!

Feb 08 11:00 AM

[303820:]

Georgen: let me tell you what the Detroit problem is...back in the 80s a president by the name of Ronald Reagan had an agenda...to bust unions...he invited the Asian auto makers to build their product in USA...Very good idea you say right?...wrong!
there is a market in this country for so many vehicles whether it is 10 or 15 million...for every non union Asian transplant...( be it Toyota, Honda or KIA)... with no pension benefits and little health care benefits...for every one of them... one of our shuts down. thus cutting in Detroit market share and profits...As market shares come down profit get thiner...as they open factories with billions of $ in tax breaks from the Toyota republicans... our own shut down! then came the $4 a gallon gas and the end of Detroit profitable SUVs...remember all those shut downs? a lot of those workers retired early thus creating a bigger burden for Detroit! don't forget also that the Asians don't have the retiree cost that Detroit has, their workers don't have a pension plan...when they retire you and I will have to take care of them! the unions are not killing Detroit the hypocrites in Washington are!

The union busting politicos in Washington are destroying this country...not the union workers...the only thing the union is guilty of is obtaining good wages and benefits for its workers.

Feb 08 11:20 AM

[#s'man:]

And I'll bet you are the first one in line at Wal Mart.


On Feb 08 11:00 AM 303820 wrote:

> I'm sick and tired of you anti union, anti American and anti workers...It's
> not the well payed working stiffs of this country that's destroying
> it or Detroit auto industry...The contrary...it's the wal mart wages
> that corporate America has created... Low wages DO NOT have the purchase
> power that's needed to keep the economy strong...You the anti union
> hypocrites are making a third world country out of America...SHAME
> ON YOU!

Feb 08 11:39 AM

[303820:]

#s'man...I'm using wal mart's wages as an example...since every one out there pays in the $9/hr range...lowe's, home depot, kmart and the non union industrial small shops...and yes i shop wal mart and buy MADE IN USA when available...but unfortunately corporate America has made MADE IN USA an all most impossible task!

Feb 08 12:02 PM

[Marcap:]

"Chapter 11 would solve the Detroit 3 union problem and other cost issues, including the bloated dealer network. The objection to Chapter 11 has been the loss of customer confidence. It couldn't get any worse, so it is time to bite the bullet."

Bravo! Bravo! Bravo!

I agree 100%! Let them fail, because until union controlled companies with their overpaid non-efficient workforces are eliminated, manufacturing jobs will never return to America, regardless of what incentives are put in place to try and encourage them, or trade barriers put in place to try and prevent their competition.

Feb 08 12:03 PM

[303820:]

Marcup....there is a reason why your toyota republicans states are at the bottom of the list when comes to wages and the top when comes to poverty!

Feb 08 12:15 PM

[Gumby:]

UAW still thinks they dont need bondholders and sharehlders.

Feb 08 01:15 PM

[Georgen:]

303820, Your analysis of the auto transplant compensation is a charicature perpetuated by union sympathizers. I have worked for 2 of the Detroit 3, and for the past 24 years, several auto suppliers. The transplants as well as the Detroit companies have been our customers. Their cash wage is on a par with the UAW. Indirect labor such as material handling, janitorial work and the like is handled by sub-contractors. Unlike UAW shops, there are no $28 an hour janitors that retire after 30 years regardless of age. Here in SC, BMW workers averaged W-2 wages of almost 70K last year. They put in a day of real work, there are no endless disputes over which classification can turn which screw, and retirement is at age 62.

Feb 08 02:39 PM

[Georgen:]

Sorry for the mis-spelled "caricature"

Feb 08 02:41 PM

[Periphanto:]

Please stop shopping at Wal Mart. I have not bought anything there since 1991 or 1992. They are a huge problem on many levels!


On Feb 08 12:02 PM 303820 wrote:

> #s'man...I'm using wal mart's wages as an example...since every one
> out there pays in the $9/hr range...lowe's, home depot, kmart and
> the non union industrial small shops...and yes i shop wal mart and
> buy MADE IN USA when available...but unfortunately corporate America
> has made MADE IN USA an all most impossible task!

Feb 08 02:46 PM

[Dave Lewenz:]

The Tears come to my eyes, as we watch our great nation implode around us. When the motor city CEO'S of the little three testify before congress and the senate, they swore on a stack of bibles, that ten million three hundred thousand units would be sold in 2009. I said no way Henry!

Try 7-8million units at best. And guess what??? We are heading down the road to hit the 7.5 mm unit number, which means all auto plants in the USA can shut down now and not open back till summer!!! That will be how the story plays out, taking down Chrysler in a fire sale and hundreds of tier two suppliers and one or two tier one suppliers in 2009, and we will also lose 2,000 dealers this year to boot!

Feb 08 03:51 PM

[Dave Lewenz:]

The Tears come to my eyes, as we watch our great nation implode around us. When the motor city CEO'S of the little three testify before congress and the senate, they swore on a stack of bibles, that ten million three hundred thousand units would be sold in 2009. I said no way Henry!

Try 7-8million units at best. And guess what??? We are heading down the road to hit the 7.5 mm unit number, which means all auto plants in the USA can shut down now and not open back till summer!!! That will be how the story plays out, taking down Chrysler in a fire sale and hundreds of tier two suppliers and one or two tier one suppliers in 2009, and we will also lose 2,000 dealers this year to boot!

Feb 08 03:51 PM

[Marcap:]

Indeed! And as you suggest, only die-hard union supporters will claim otherwise. Many of them do so no doubt through fear of loss of their own non-productive jobs. After all, if that were not the case, and Toyota for example, was such a bad place to work, why on earth would only a small number of Toyota workers vote to bring the UAW (CAW) into their plants, when the opportunity was presented to them to do so. The indicated vote was only a fraction of the 40% required by law in order to form a union shop environment.

Nonetheless, I suspect that it will not be very long before tens of thousands of UAW (CAW) workers suddenly find that their unions will no longer be able to protect their jobs as claimed. There will be no job security for them. Unfortunately they have gone on strike and threatened to do so far too many times, and now their very jobs will likely be gone. It will however be a very sad day for some of them when they wake up, and suddenly realize that they will not be able to get a new job for but a mere fraction of what they have become so accustomed to for so many years, and all at the expense of America's manufacturing sectors. Reality is knocking. It is time to either change union mentality or legislate against it. And it is time for America to wake up to that fact.

And for those who do not like these comments, go ahead and give me the thumbs down for them, but I can assure anyone that doing so will not change these circumstances one little bit. They are part of reality, and nothing will change that fact.

On Feb 08 02:39 PM Georgen wrote:

> 303820, Your analysis of the auto transplant compensation is a charicature
> perpetuated by union sympathizers. I have worked for 2 of the Detroit
> 3, and for the past 24 years, several auto suppliers. The transplants
> as well as the Detroit companies have been our customers. Their cash
> wage is on a par with the UAW. Indirect labor such as material handling,
> janitorial work and the like is handled by sub-contractors. Unlike
> UAW shops, there are no $28 an hour janitors that retire after 30
> years regardless of age. Here in SC, BMW workers averaged W-2 wages
> of almost 70K last year. They put in a day of real work, there are
> no endless disputes over which classification can turn which screw,
> and retirement is at age 62.

Feb 08 05:59 PM

[303820:]

Your transplants hire 25% of their workers at $12/hr and no benefits they are temps (2year contract workers)...That's a fact... not analysis! their permanent workers are at lower wages...any where from $17/hr to $26/hr with no pension benefits...whether they retire @50 years old or 70...and they have limited health care as long as they are working...that's a fact not analysis!
Talk to me when your BMW retire with no pension and have to pay 20% of their medical bills and medicines!

Feb 08 06:19 PM

[Georgen:]

303820, you obviously are well trained in your talking points, however inaccurate they may be. Lets set the record straight. The temp workers are more like 10 to 15 percent of the workforce in most of these plants, and wages are more like $14 an hour for them. Do you have any evidence that they were rounded up at gunpoint and forced into these jobs? Wages and conditions must be suitable to them it appears. Wages after 2 years are indeed on a par with UAW, as are medical benefits. If you retire befor 65, most of your medical premiums are paid until you are eligible for medicare.Retirement is taken care of by 401K matching, and at 70K a year, one should be able to save additional money, especially in a low cost areas where most tranplants are. As far as paying 20% of medical bills, if you are on medicare you can purchase a supplement or take an Advantage plan at modest cost, and very little is not taken care of. Anyway, what is the crime in paying for a service you receive? Most customers of the dying Detroit 3 don't have the benefits you talk about, so why should customers be forced to support them through their purchases? The transplants are simply adjusting their cost structure to what most customers are willing to pay.

Feb 08 09:49 PM

[User 368583:]

There are some countries that operate this way. Why not live there?
Our country has the longest history of any with on economic system that says your comments are wrong. We should be doing the opposite of what you claim.


On Feb 08 09:35 AM gybognarjr wrote:

> I mostly agree with your assessment, but I am not as forgiving as
> you are. I would not have given GM and Chrysler a single penny,
> I would let them fail, Ford would follow them. I would like to see
> the UAW disappear and the management of these companies to be left
> out on the pasture and be the target of class action lawsuits and
> jailed for life. (Same for the bank CEO's) Let's have a shorter
> depression, a complete and new reorganization of our banking system
> with strict government controls and new business models for private
> industry. More people would suffer for a shorter time and then have
> a long and rising prosperous future with the criminals cast away
> and a system fixed.
> Now we are prolonging a deep recession and nurturing the same criminals,
> rewarding failure and postpone the inevitable depression and collapse
> of a credit based monetary system and the multinational criminal
> business organizations. The people were sold out to the multi nationals
> as raw resources and before our lives can improve, we have to return
> to responsible and self respecting, sovereign nations, governing
> business. It is governments that should rule nations not businesses
> abusing people, buying politicians and law.

Mar 03 10:10 AM