February Auto Sales: Worse than We Thought

In our February auto sales preview, we said that all signs were pointing towards another dismal month of auto sales, which would be even worse than January sales. How fitting is it that the stock market is now trading at levels not seen since 1997, and auto sales are at a level not seen since 1982 (that's 27 years). The following table outlines the sales figures, percent change from February 2008, and the change so far in 2009 compared to the first two months of 2008. Volkswagen is the "silver lining" as sales are only down 16.7% this year. Chrysler, which has seen sales drop approximately 50% for each of the past five months, fared "better" than its Detroit counterparts, seeing sales only decline 44.0% as a result of massive incentives.

The seasonally adjusted annualized selling pace (or industry SAAR) for cars and light trucks was about 9.1 million, down from 9.6 million in January and far below the pace of 15.4 million recorded in February 2008. We had modeled for industry SAAR of 9.3 million. In such a bleak report (and given that we like to see the bright side of things), we can hopefully say that it is not going to get much worse for auto sales in this country. Of the companies listed above, only General Motors and Toyota saw sales decline in February from January 2009. Is this the bottom for auto sales? We do not think so. The economy still has to swallow all the job cuts announced over the past few months before we will say that we have reached "bottom." February's drop marked the fifth straight month that U.S. auto sales fell 35% or more from a year earlier, and it signaled a weakness in the market after January's 37% decline.

As I said yesterday, I have done radio interviews for Fox Radio affiliates across the country, and it is interesting to hear the differing opinions depending on the region of the country regarding the automakers and financial bailouts, as well as President Obama's stimulus plan and budget. I still think that the automakers need to be helped through this difficult time (read NOT BAILED OUT). Heck, even Honda and Toyota are going to the Japanese government asking for help. There is still a lot of pent up demand, and the minor tax incentives included in the $787 billion stimulus package is not enough to release that demand. Cheaper loans and some incentive spending are by no means a bailout. So far Ford has been able to hold out without help from the government, but another two months of sales in the 9.0 to 9.4 million units range, and it will be a different story.

On March 3, Chinese car maker Geely Holding Group was rumored to be in the beginning stages of making a bid to acquire the Volvo brand. Sources say the talks have been ongoing for about a year now, but it appears that in recent weeks Geely is getting closer to making an offer. That would help Ford with its cash problem, but I do not think it will be enough.

I still feel that the title wave of job losses stemming from an automaker bankruptcy would be catastrophic for the United States economy, but I do feel that something needs to be done, and whatever that is, it needs to happen sooner rather than later. I have been a proponent that the government aids the industry to give it time to turn itself around, but this industry moves at a snail's pace. This industry could help bring the economy out of the doldrums, but instead it continues to act as an anchor. Detroit's Big Three will not last this downturn as the Big Three. I think that Chrysler will be first to go on the chopping block, and once it enters bankruptcy, the pieces will be picked up by General Motors, Fiat, and Nissan. Additionally, I think we are about to enter into a wave of consolidation in the industry that could completely alter the auto manufacturing environment for the entire world.

This begs the question: does the government want to own the largest auto manufacturer, bank, and insurance company in the country? My feeling is no. There are plenty of people in Washington D.C. that think they know how to run a financial company (clearly not nearly as well as they think, but that's for an entirely different article), but how many people in Washington or New York know the inner workings of the automotive industry. Ford CEO Alan Mulally is still learning the tricks of the trade and the industry doesn't have enough time to train someone else for another two years. That is why Mr. Mulally and GM CEO Rick Wagoner still have a job. The automakers should take a backseat to the financial system because as the financial system stabilizes and improves, so too will the state of the economy and therefore the automakers will follow suit.