Auto Sales and Manufacturing: Unsustainable Pace of Recovery

Stronger than expected U.S. auto sales point to an constructive August retail sales report, when it is released on Sept 15. However, the risk is that due to lighter back-to-school traffic, sales excluding autos and gasoline may be somewhat softer than the headline.

Total seasonally adjusted U.S. auto sales rose to 14.1 mln units at an annualized rate, the highest since May 2008. It compares with consensus of 13.3-13.5 mln and July's 11.3 mln. Domestic producers sold at a 10.2 mln pace after 8.4 mln in July. Ford (F) and GM estimate that if it weren't for the government's incentive scheme, auto sales would have been around 10.5 mln from 9.5 in June, before the cash-for-clunker program.

The auto sales report also underscores a theme investors are watching: inventory developments. They are lean. Yesterday's data show Chrysler with 28 days, Ford: 36, GM: 48, Toyota (TM): 11 and Nissan (NSANY): 22 days. Several producers have already announced re-opening of factories and production lines. The lack of inventory might help account for some of the gap between the sales performances of individual producers and analyst forecast

The U.S. cash-for-clunker program ran essentially three weeks (July 27-Aug 24). The risk is that unless the producers devise new incentives sales will likely slip this month.

German auto sales for August reported earlier today were up for the 7th consecutive month. Registrations are up by 28% year-over-year. however, in Germany rather than boost production, the cash-for-clunker program that ends today does not appear to be leading to an increase in output. Auto output fell for the 11th month in August, while auto exports matched the streak. The German cash-for-clunker program was worth 2500 euros (~$3600) to buy a new car and scrap an auto at least nine years old. Separately, French auto sales in August rose 7%.

This illustrates another point, the recovery in manufacturing appears to be global in scope as was its collapse. Two observations here are worth sharing. First, as has been seen in recent days, it is possible that at least part of the recovery story gets factored into the market so that there is less of a response to fundamental good news. Yesterday, for example, the stock market did not derive much strength from news of a stronger than expected U.S. manufacturing ISM. Second, the pace of improvement in manufacturing (globally) seems unlikely to be sustained and some leveling out in the coming months should not be surprising.

Comments

[dw57:]

sales always slip in September. no question that this month will be a big drop off from last month. and the C4C program was what the domestics (and many others) have been running for many years now. i suspect that there will be some expansion in sales later, just not as much as in the past. the consumer is tapped out, and isn't interested in any thing but real good deals, short of an absolute need for a new vehicle

Sep 03 04:32 PM

[LilBob:]

I have to side with dw here regarding autos. I think the only hope that Chrysler has is to review the Iacocca playbook and come out with a line of very affordable cars with minimal features. The K car is what brought Chrysler out of the dumps the last time, and small cars built the businesses of the foreign automakers. The first American automaker to start rolling out bare-bones econoboxes will cash in big-something that makes the Chrysler/Fiat match look smarter than it may have at first. Ford could also be a contender here, a stripped down "Economy" (awful pun I know) version of the Focus.

Also, don't forget that part of the impetus for cash for clunkers was to reduce US oil consumption. Oil consumption is the weak link of any weak dollar policy that's intended to slow the hemorrhaging of manufacturing jobs to overseas producers. If the US dollar gets weak enough, and relatively higher shipping costs make overseas production less attractive, then manufacturing job losses may slow considerably.

Sep 03 08:41 PM

[C.S. Jefferson:]

You will be able to get better deals on all 2010 vehicles because that cash for clunker demand was artificial and by spring of next year dealerships will be begging you to buy once again.

I really liked the premise of the cash for clunker program because, let's fact it, it worked!

The most disgusting thing about the cash for clunker program is that just about every dealership raised their prices back to MSRP on 2009 year old manufactured vehicles.

All year long dealerships were offering huge incentives and pricing the same vehicles much lower without the cash fo' clunker rebate. Once they saw that gov't cheese rebate roll out, those dealerships took advantage of consumers who were tricked into thinking they were buying vehicles at a huge discount!!

I can't believe no attorney general or prosecutor has gone after the dealerships for price gouging consumers.

Sep 04 12:15 AM

[gatersaw:]

Ok so if everyone in the US pays $10 we can stimulate another industry. What next?!!! It's a damned tax and nothing more. We all just paid $20 to give auto manufacturers $10. It's government people! if you think it's running a zero sum game you're not just stupid you're dog gone stupid! By the way why has only 2% been reimbursed? They promised to have folks paid up by now. Oh yeah...it's government! Get a fricken hint.

Sep 04 12:38 AM

[maelstrom:]

Gatersaw..you nailed it ..our government is the most inefficient ,wasteful and corrupt (and may I add idiotic)bunch in the free world..concerned with re election only ..no oversight on them and guess who will be exempt from their National health care package..yep, Congress...

Sep 04 08:34 AM