Going into August's auto sales results, we knew there would be a decline from last year as August 2009 was benefited from the cash for clunkers program. With that in mind, it wasn't as bad as some articles were predicting. One of the headlines include "the worst month for auto sales in 28 years." First thing is it was a stat for the month of August, not any month of the year. That fine print took many by surprise. If you remember back to May, June, and July of last year, the industry seasonally adjusted annual rate of sales (SAAR) was below 10.0 million units, the lowest was 9.2 million. The figure for August 2010 didn't really approach that Armageddon level, but it was one of the worst August's (adjusting for population growth) since World War II. I honestly had hoped we had passed the post WWII comparisons, but apparently not. There were 997,468 sales which equates to approximately an industry SAAR of 11.7 million units.
The two biggest winners from the cash for clunkers program, Toyota (NYSE:TM) and Honda (NYSE:HMC), were the biggest losers during the month of August, falling 34.1% and 32.7% respectively. A Company that saw next to no cash for clunkers sales, Chrysler, saw the biggest jump during the month, gaining 6.9% compared to August of 2009. In fact, Chrysler sales are up 10.2% year to date, however, there is a large caveat with Chrysler; it is being compared to a relatively low base. The Fiat 500 will hopefully give the Chrysler name a presence in the small car arena; however, it is entering into a crowded marketplace. I was interviewed on Fox Business on Wednesday afternoon and spoke with a Chrysler dealership owner. He was excited about the future, and to be honest, I was EXTREMELY shocked by Chrysler's results.
General Motors performed a little worse than we had expected. The Chevy brand, which benefits from the cash for clunkers program was down year over year, however, the Company bragged that Cadillac is the fastest growing luxury brand in the industry. Again, take that with a grain of salt as the brand was rebounding from a small base in one of the worst recessions in more than 70 years.
September is going to be another month of difficult comparisons, especially with the lackluster economic data being released lately. There were a few bright spots during the month though; Ford raised its production forecast, again, for the second half of the year showing that it expects demand to continue at current levels (maybe even grow a little). The other companies aren't so confident and didn't up their production forecasts. I am willing to give CEO Alan Mulally the benefit of the doubt on this one, he has been right with just about every decision for Ford over the past few years.
As we said last month, the next few months are going to be difficult for the automakers. After taking away some incentives at the beginning of the summer, it seems that the industry may have to up the ante to get consumers biting again. Cash for clunkers had a follow through effect to September so right now; it will only be sequential improvements. Pricing power had been returning to the industry, namely for Ford, however, that is likely to erode over the next few months.
September is the month that 2011 models are released and there will be a lot of buzz for the Leaf and Volt that are released last this year, but even higher incentives couldn't entice consumers to enter showrooms. We do expect to see a strong sequential improvement in September (mid single digit percentages) with relatively flat sales through the final three months of the year. The economy continues to be a big wild card.
Auto sales (and auto makers) in previous months has given the economy a needed boost, but the same cannot be said for the August figures. Bringing a term out of hibernation, it was a Goldilocks quarter, but with a negative connotation. It wasn't too good, but at the same time, it wasn't that bad; it could have been much worse with all the problems that are currently affecting our economy.
Disclosure: Analyst owns shares of Ford (NYSE:F)
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