By David Silver
Over the past week, many of the big forecasting shops (JD Power for one) have lowered their seasonally adjusted annual rate of sales (SAAR) for the auto industry for 2011. I am keeping mine the same, as I was below many of them to begin with. After months of April and May of 2011, I lowered by forecast from between 12.8 million and 13.2 million to between 12.4 million and 12.8 million. JD Power lowered the forecast to 12.6 million last week. Auto sales have been extremely weak during the summer, and just about all the momentum has left the industry. Even the redesign of the Camry didn't spur the usual buzz. Companies seem to be looking for ways to just get through the dog days of summer (August is almost over, can you believe it?) without too much more bad news. Toyota (TM), Nissan (NSANY.PK), and Honda (HMC) are bouncing back from the production shutdowns following the earthquake and parts shortages, but there isn't the incentive push that many were expecting.
Many analysts had forecasted a second half rebound in both confidence and auto sales. I will admit that entering into 2011, and after the first three months, I was among those calling for the strong second half. It appeared that with consumer spending rebounding that the ground was being laid for the return of the end demand, which meant, wait for it, JOBS! That didn't really materialize, and with the deteriorating situation in Europe and lack of economic growth, we lowered our forecasts. I received plenty of media calls from reporters I know asking what was behind the change. Most asked what was going to change between now (back in April) and the end of the year? My answer to them was nothing, and that's the problem. We have gone through a debt ceiling "crisis," seen our credit rating slashed, seen oil prices range from $80 to $105, and two seasons, but what has really changed? Nothing, we are still in a very similar place to where we were back in April.
Another reason for my lowered expectations was the earthquake in Japan. Toyota, Honda, and Nissan took a serious blow to their production and parts supply chain, but as I said immediately afterward, it could be a boon for all three companies. I think Toyota will be the biggest winner, but it won't be enough to offset the tepid (at best) consumer confidence. Americans are extremely nervous about opening up their wallets and pocketbooks right now, and most can't justify going out for that new car. There may be some pent up demand, but the average age of a vehicle continues to be on the rise. The following chart shows the average age of vehicles being driven in the United States, and this latest bout of economic weakness promises to boost it even more.
We have another week before auto sales numbers are released, but it is not looking good for the auto industry. The only slight positive may be the drop in oil and gasoline prices. I live in New York City, so I really don't have to deal with gasoline prices that often, but this past weekend, I was at a wedding in Idaho, and I must say, I thought that gasoline prices would have been lower considering the drop in oil prices.
