Auto Sales Dismal: GM and Chrysler Oddly Optimistic

uto sales were generally dismal across the board, with Honda the only bright spot as reported in an Auto Makers Report by the Wall Street Journal.

The declines were exacerbated fewer selling days; there were 24 selling days last month, compared with 27 in June 2007.

Ford  (F) reported 173,462 light-vehicle sales for June, compared with 240,354 a year earlier.

Toyota (TM) sold 193,234 vehicles in June, compared with 245,739 a year earlier.

For the second quarter, GM (GM) produced 835,000 vehicles, down 307,000 vehicles or 27% from a year ago.Looking ahead, GM now expects third-quarter production of 900,000 vehicles, down from its prior view of 1.1 million, amid slashing trucks production by about 209,000.

Chrysler's sales slumped to 117,457 from 183,347, with car sales tumbling 49% to 29,858 and truck sales decreasing 30% to 87,599. President Jim Press said despite U.S. consumer confidence being at a 16-year low, "Chrysler is fighting back and making progress by continuing to invest in our products and aligning our volume with the market."

Chrysler Fighting To Avoid Bankruptcy

The idea that Chrysler is "fighting back" is preposterous. Even sillier is the claim of "aligning our volume with the market" smack in the midst of a 49% sales plunge. This company will not last long.

GM's Over-Promise Under-Deliver Optimism Continues

GM's ever optimistic, never reached forecast is for third quarter production to increase from 835,000 vehicles to 900,000 vehicles. That is a drop from their prior estimate of 1.1 million vehicles. However, the entire drop is based solely on slashing truck production by 209,000 trucks. Let's look for some clues to see if they can do it.

In June Auto Sales: General Motors Forbes is reporting "Adjusted to reflect three additional selling days in the year-ago period, GM's sales fell a more modest 8.3 percent."

Although 8.3% sounds a lot better than 18.5%, car sales were still down and are likely to get worse. If GM expects to hold to its car production forecast, it better be expecting some huge incentives as well or it will be flooding dealer lots with stuff they cannot sell.

U.S. Automakers Can't Justify June

Here's a funny comment by Ford in U.S. Automakers Can't Justify June: Ford vice president James D. Farley, conceded that "the economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty."

I disagree on both counts: There is plenty of momentum, all of it downhill. And as opposed to there being a "high degree of uncertainty" I have to ask: about what? There is a very high degree of certainty that economic conditions are going to get far worse than they are now.

Comments

[Still Renting:]

The Chrysler thing is sad for me. I became a Chrysler man after reading IACOCA and still love the ability to get fault codes by simply turning the key on, off, on, off, on. I've fixed so many little problems on high mileage cars this way. And our 2001 300m is still a joy to drive even with 135k miles. And it has been completely trouble free. I even had it to 130 mph in eastern Montana a few times and it was really great!

But their small car (neon) was a textbook lemon, and we drove their convertible in Hawaii a couple of months ago. That thing is a pig. It makes our 300, which is bigger and more powerful, feel like it handles like a sports car, even with original shocks!

The new challenger is something I drool over but, ultimately, it is just a car. It was a good run and they made some great stuff and some absolute dogs. I mainly drive my Scion xBox to work and band gigs anyway so I won'd shed a tear over this, except for the workers...

2008 Jul 03 11:48 AM

[edaddy:]

I love how all the wall street articles over look a major component that is missing from the big 3 sales numbers this year, sales to rental car companies. The big 3 has dramatically cut these zero profit sales to Avis, Budget, Dollar, Hertz, Thrifty, etc. since 2007. The big 3 used to sell their over capacity cars to the rental companies at cost or less and then would guarantee buyback prices. The big 3 stopped a large portion of these sales in 2006 and have reduced every year since. That is why you see the rental car stocks like CAR, DTG and HTZ tank since the end of their fiscal year 2007. So for companies like Chrysler, Ford and GM to sell as many trucks and SUV's as they did in June is actually amazing considering the state of the economy and fuel prices.

2008 Jul 04 11:31 AM

[BioInvestor:]

edaddy, I don't follow what you're saying. What I read is that

1. The US Big Three sold cars to rental car companies at cost or less;
2. They no longer sell cars to rental car companies at cost or less;
3. As a result, the share price of rental car companies has dropped.

So, the argument offered in the post is that the reason the share prices of rental car companies have declined is that they can no longer buy cars from the major three domestic car makers at a discounted price.

One could conclude that these companies are either (a) buying cars or (b) they're not buying cars. If the rental car companies are not buying cars right now or are extending the average age of their fleets (neither situation is actually occurring in a way to support the argument), then, at least in the past two years, they no longer have a major cost, which would seem to argue against a decline in stock price.

On the other hand, if they are buying cars right now from the Big Three and paying higher prices for those cars, then they do, in fact, have a higher overall cost, which should negatively impact their stock price. Conversely, if the Big Three are selling cars to rental companies at a higher margin, then, presumably, these sales should help car company revenue numbers.

So, I don't understand the argument you're making. The facts you state don't appear to support your claims.

Incidentally, if you look at the financials for Hertz, as an example, you'll see that the company hasn't changed the average age of its fleet: it continues to buy cars. Further, last year Hertz generated almost $6 billion in car rental revenues worldwide and $1.76 billion in equipment rentals. In 2007, revenues grew by $8.69 billion (aided by a declining dollar!); pre-tax income grew by 35.8% and net income grew by 36.7%. The company is diversifying its fleet and no longer depends exclusively on US automakers; however, this trend has been in place for some time.

For Hertz, at least, the stock has been in decline, but I see no evidence to support the thesis that this decline is driven by higher prices from the Big Three US automakers.



On July 4, edaddy wrote:

I love how all the wall street articles over look a major component that is missing from the big 3 sales numbers this year, sales to rental car companies. The big 3 has dramatically cut these zero profit sales to Avis, Budget, Dollar, Hertz, Thrifty, etc. since 2007. The big 3 used to sell their over capacity cars to the rental companies at cost or less and then would guarantee buyback prices. The big 3 stopped a large portion of these sales in 2006 and have reduced every year since. That is why you see the rental car stocks like CAR, DTG and HTZ tank since the end of their fiscal year 2007. So for companies like Chrysler, Ford and GM to sell as many trucks and SUV's as they did in June is actually amazing considering the state of the economy and fuel prices.

2008 Jul 05 12:42 PM