Auto Sales Stabilize in October

“…And GM really making real progress with the SUV’s. I mean, I have got to tell you, they have really come alive in that segment, they now lead Ford in that segment. Other winners just looking at everybody, not just GM, Cadillac is up. Ford Taurus sales up 41%. That’s a winner for Ford now and Mulally. The only Chrysler Model to be up month over month, 2008 to 2009 in October was the Dodge Caravan, sales of the Caravan were up 8%. All in all, guys, pretty good news for the auto sector this October.” — Fox Business Network 11/3/2009

With the exception of Chrysler, most major automakers saw improved U.S. sales performance in the month of October. Despite analysts expectations of declining sales, Ford (F) and General Motors both surprised to the upside with gains of 3.1% and 4.1% respectively. This was GM’s first year over year gain since January of 2008. Nissan reported sales grew by 5.6%, and luxury brands like Mercedes Benz (DAI) and Porsche also had better results than last year.

Of course, we are aware that these results are compared to some pretty wretched sales from the post Lehman collapse a year ago. For example, GM sales fell 45% in October of 2008 largely due to a lack of available financing in the midst of the credit collapse. However, it appears that this does show that perhaps the sales trends are starting to improve for automakers. According to a survey of analysts by Bloomberg, the annual sales rate for the the month of October topped 10.3 million vehicles. The 10 million vehicle benchmark is an important one and October is the first month of 2009 to top this benchmark without government incentives skewing sales results.

We are hopeful that these results suggest that stabilization in sales has begun, which would be better than we had expected in the wake of Cash for Clunkers. Our readers will remember we were critical of the program’s effectiveness after September sales sagged deeply (Cash for Clunkers Saps Demand). If this month does start stabilization, even at fairly low levels, we must give the cash for clunkers program a reprieve for the conventional wisdom.

One thing to note is that this could just be a return to more normal replacement rate of vehicles after slower than normal sales for more than a year. With an annual sales rate of 10.3 million light vehicles, it would take more than 23 years to replace all vehicles on the road in the U.S. This is well in excess of the historically normal replacement rate for U.S. autos of about 13 years. After such a horrendous year for non-government stimulated auto sales, just to get back to more normal replacement levels, there still may be some gas left in the tank for further sales improvement so to speak.

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Comments

[Mad Hedge F...:]

itw I can’t imagine a finer example of “creative destruction” than Fisker Automotive’s takeover of a General Motors plant in Boxwood, Delaware that once built unwanted Pontiacs and minivans, but closed in July. The startup car maker will use a $528 million US government loan to build 100,000 plug-in hybrid electric cars a year that will sell for under $40,000. The firm’s Danish entrepreneur founder, Henrik Fisker, describes the new car as a “green BMW.” The firm plans to export at least half its production. The Irvine, California based company is already building a high end electric sports sedan in Finland called the “Karma” for $87,500. Joseph Schumpeter’s spirit must be smiling.

Nov 04 07:06 AM

[logicalthought:]

>>With an annual sales rate of 10.3 million light vehicles, it would take more than 23 years to replace all vehicles on the road in the U.S. This is well in excess of the historically normal replacement rate...<<

Modern cars last longer than ever. The oldest car in that "23-year cycle" would be a 1987 model, and I'll bet that even the bulk of '87s (and, of course, the '90s, '91s, etc.) are still quite roadworthy and thus wouldn't HAVE to be scrapped. Sure, their owners would probably LIKE to replace them with newer models, but if the unemployment (and low-wage) situation continues, we could wind up with a 10.3 million-unit annual sales rate for a very long time to come.

Nov 04 07:19 AM

[David Sullivan:]

As baby boomers retire, they drive much less. As retirement looms, people become savers.
All those Toyotas and Hondas on the road with 300,000 miles, plus the information in Consumer Reports, push buyers to avoid Dodge Caravans which only make it to 120,000 (and then with a lot of costly repairs.)

Nov 04 08:18 AM

[spawn44:]

They don't call autos cyclicals for nothing. And the pattern does'nt vary much. Auto sales will rebound as sure as the sun rises in the east.

Nov 04 12:24 PM

[303820:]

TAKE YOUR TOYOTA AND HONDA AND AND DO YOU KNOW WHAT WITH THEM... ARE YOU A SPOKESPERSON FOR THE ASIAN "RUST BOX" MANUFACTURES? THERE ARE MORE DOMESTIC QUALITY VEHICLES WITH HIGH MILLAGE ON THE ROAD THE THERE ARE ASIAN "RUST BOXES". THIS IS UNITED STATES OF AMERICA NOT "ASIA"... GET LOST!!!!!!!!!!!!!


On Nov 04 08:18 AM David Sullivan wrote:

> As baby boomers retire, they drive much less. As retirement looms,
> people become savers.
> All those Toyotas and Hondas on the road with 300,000 miles, plus
> the information in Consumer Reports, push buyers to avoid Dodge Caravans
> which only make it to 120,000 (and then with a lot of costly repairs.)

Nov 07 05:25 PM