CSM Worldwide have some bad news for auto execs waking up to their skinny lattes. The automotive forecasters reckon the collapse of the housing market and soaring consumer debt will send U.S. auto sales plummeting by nine percent. CSM's Senior Economist connected the dots. "With many consumers having a harder time getting mortgages or coping with higher payments from their adjustable rate mortgages, there will be a considerable impact on light vehicle sales," Charles Chesbrough predicted. "Weak sales of existing homes and declining home values also are dampening consumer spending, leaving less money available for vehicle purchases." It gets worse. CSM's NA soothsayer says American automobiles sales will recover "no sooner than" the fourth quarter of 2008. In fact, Joe Barker says "market fundamentals have deteriorated and will need at least a year to rebuild." He also noted that the domestics' production is heading south, while the transplants' are ramping-up. As David Halberstram might have said, a reckoning is on its way.
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Frankly, I think he is being optimistic. It will take that long just to unwind the mess in the housing market.
Ever heard of “regression to the mean?”
20 year US mean (average) car sales are, surprise, about 15.5 million per year. Fancy that.
Why the D3 allow the UAW to dictate hourly headcount based on high year production rates constantly amazes me.
If Mullally, Nardelli, and Wagner have three brain cells amongst themselves, they would set their UAW headcount based on this year’s demand/slow line speed. Instead of an employment floor, make it an employment ceiling. As Hyundai and Homer have said, “DUH!”
If there is a good year that needs more product (not likely), it’s fast line speed/OT city. Can’t meet demand? Raise the price, stupid!
You can live in your car but you can’t drive your house.
As David Halberstram might have said, a reckoning is on its way.
With a capital “R” in fact. Well put, Robert.
The unfortunate thing is that many of the people impacted by this housing slump are the type of people who bought much more house than they could afford; the type of people who are liable to buy much more car than they can afford. I’ve never totally grasped how car companies can move so many units on an annual basis when the average price of a car is something like $30,000. Easy credit got us here, and easy credit has gone out the window for now. Sorry homebuilders and automakers, you’re screwed.
Ever heard of “regression to the mean?”
20 year US mean (average) car sales are, surprise, about 15.5 million per year. Fancy that.
Cam, the US population has grown 25% in the last 20 years. The concept of “regression to the mean” applies to averages and rates, not absolute numbers in a growing population.
It would be pretty pathetic if we come in as low as 15.5 million ever again — the long term trend suggests we should be passing 17 million these days if all was normal.
Reckoning?
There’s a dark cloud rising from the desert floor
I packed my bags and I’m heading straight into the storm
Gonna be a twister to blow everything down
That ain’t got the faith to stand its ground
Blow away the dreams that tear you apart
Blow away the dreams that break your heart
Blow away the lies that leave you nothing but lost and brokenhearted
Bruce Springsteen — The Promised Land
Halberstam published “Reckoning” in 1986. Chrysler was being revived at that time and the Suburban was a work-crew truck. Bad management has destroyed the domestics since then, but they were a long way from dead 21 years ago. Now, I firmly believe that character is fate, but chance plays a large role in history, and there was a chance that any one of or all three could have been rescued by someone in that time.
It is too late now, but it was not too late then.
Kevin and OHC9000:
Keep in mind that the expected life of a vehicle has increased dramatically in 20 years. But then the number of vehicles per capita is up also.
On the whole my bet would still go with a glutted, over-saturated market. Same for homes also.
Just some thoughts.
Bunter
You can’t sell 17 million cars to a population if they can’t afford to sustain it. It doesn’t matter how big a population is, if the money isn’t there the car doesn’t get sold.
The rubber band is about to snap back hard!
Is the projected number based only on new car sales? I think one of the car makers biggest difficulties is that they’re victims of their own success, at least in the sense of making reliable, long-lasting cars.
I don’t know what other people’s “numbers” are, but I typically keep a car for about 4 years and put 80-100,000 miles on it. Since almost all cars – even domestics – are good for at least 110,000 – 150,000 miles before needing major work, I can do great buying a gently used 2 or 3 year old car that will last as long as I need it to. I’ve purchased 2 new cars in my entire life and if I never purchase a new vehicle again, I don’t think I’ll be unhappy. So while my purchases make the local dealer happy, they don’t net dime one for the manufacturer.
Of course, this is parasitic behavior, isn’t it? After all, I can’t buy that cherry used car until somebody else buys a new one and drives it for a year or so. If fewer people buy new cars, or if more people who buy new cars keep them for longer periods of time, one would expect the availability of good, low mileage used cars to drop and the prices to correspondingly rise.
It’s pretty simple; the Pigou wealth effect positively correlates consumption and aggregate wealth. If the value of your house falls, your wealth decreases, and you consume less. Since cars are long term durables and represent the second largest investment people make after their house, they are the easiest and most attractive option for a household reducing its expenditure as a result of a decline in its wealth.
‘You can live in your car but you can’t drive your house.’
Luther, your comment reminds me of when Clarkson was testing the big Bentley Continental on Topgear. After he had it up to around 150mph he commented, “not particularly fast for a car, but for a cathedral, quite fast!” or words to that effect. First time I ever saw a cathedral doing that speed!
Actually, if you read between the lines in gold-bug sites, you’ll start to realize that there is a distinct possibility that we are going to go into a recession the likes of which the US hasn’t seen for quite some while. Read; depression (as a worst case scenario).
Let’s see. THE Depression lasted from November 1929 through 1941, not forgetting the recession which killed economic recovery in 1938
Here are some stats worth thinking about. Combined Ford & Chevrolet & Plymouth sales for
1929 – 2.83 million (excluding Plymouth, pre-born)
1930 – 1.9 million
1931 – 1.3 million (ouch!)
1932 – 0.7 million (OUCH!)(Nadir is hit)
1933 – 1.1 million (many companies dying)
1934 – 1.4 million
1935 – 1.7 million
1936 – 2.4 million
1937 – 2.3 million
1938 – 1.3 million (ouch! – recession)
1939 – 1.5 million
1940 – 1.7 million
1941 – 1.7 million
So how about a real sh*t storm by oh, about 2011, with maybe a 75% reduction in new car sales by then? That’d obviously see GM, Ford and Chrysler – GONE. Probably Mitsubishi and Suzuki too. Certainly Isuzu, Saab, maybe even Volvo – all history. Perhaps even Nissan/Renault. Many Chinese companies would sink never to be seen again (world economy, you know – we all sink or swim together, right?)
At least 43 US marques died between 1930-1941.
Most of them you won’t even recognize.
American Austin
American Bantam
Auburn
Blackhawk
Brewster
Continental
Cord
Cunningham (not the same co. as 1950’s cars)
Detroit Electric
DeVaux
Doble
Duesenberg
duPont (yep, the Chemical family built cars)
Elcar
Erskine
Essex
Franklin
Gardner
Graham
Hupmobile
Jordan
Kissel
LaFayette
LaSalle (GM)
Marmon
Marquette (GM)
Oakland (GM)
Peerless
Pierce-Arrow
Reo
Roamer
Rolls-Royce of America
Rockne
Roosevelt
Ruxton
Stearns-Knight
Stutz
Terraplane (isn’t that a cool name for a car?)
Whippet
Willys-Knight
Windsor
There are already more vehicles in circulation than are really needed in any real sense of the word need. The US market could take a 6 month vacation in not which a single new car or truck was sold and everyone would be able to go about their daily lives and business just fine.
Some of the best minds in marketing have said that about 50% of total consumer demand is created by the marketing/sales game. Put another way, if all the hype stopped then the baseline demand for consumer goods would be about 1/2 of what it presently is.
This is also true of the average price of new vehicles. The vast majority of real automotive uses can be filled by something like a Honda Fit or a Scion xB. Most things sold above that level are because people WANT them, not because they need them. Sure some work and lifestyles call for the capacity of Suburbans and F150, but there are enough lightly used ones of those around serving as commuter mobiles that they could be shifted around in the population.
When times are tight for a person, family or a whole society then consumption migrates back more towards actual needs and away from hyped up wants. The role of marketing is to hype wants. During the 90s easy money combined with aggressive marketing got a whole lot of people into expensive gas guzzling vehicles. Now there is a huge oversupply of those vehicles in circulation.
A good friend of mine routinely buys 100-150k mile used Volvo 240 wagons and then puts another 100-200k miles on them. He is excited to have recently found an excellent 1993 example (last of the line) for $1800. He will spend around $1k/year on maintenance and repair and in five to ten years will unload it for around $1000. Those economics are hard to beat with a new anything.
There is no natural bottom to the current US light vehicle market, and if there is, we still are nowhere close to it.
glenn126: Thanks for the fascinating history lesson – seems like the quantity of nameplates may decrease again.
Glenn126 can you provide some of those links about the impending recession/depression?
I have had a sick feeling in my stomach of impending doom for about 6 months that exactly what you predicted is coming and fast. It’s starting to become painfully obvious if you read between the lines and look past the drivel the media keeps feeding us.
The high end guys will get hit big. The room temperature IQ real estate cubicle jockeys used to something for nothing might have a problem with BMW and Lexus payments.
The 2.? will get hit big on PU trucks, no construction, no contracting.
The end is near! Doom DOOM DOOM!!!
Well, at least that ‘gently’ used top of the line 2-3 year old Mustang I will want in 5 years will be cheap. I don’t now about out and out depression (despite our over-reliance on services, America does still make some stuff the world must purchase here) recession is likely. The supposed decoupling of the US economy from the world would mean Asia and Araba continue to grow while the US and Europe falter. I do wonder if a cheapening dollar combined with relatively high quality workmanship will make America an automobile exporting nation. I know some Marysville Accords head across the pond. Would it be economical (assuming 105% factory utilization in Japan) for ToMoCo, Nissan, Mitsubishi, and Mazda to use US factories for world exported cars? Will the world clamor for American designed Gi-normous crossovers the way they did for Explorers and Suburbans back in the 90’s?
Or maybe the end is near, 75% of US auto production ends, and in 2020 we have a choice between Honda Accords, Toyota Camrys, and whatever the new AMC puts out. (Chargepala’s?, Tauribu’s? Fuser’s?) {that’s actually a cool name}.
Boy lots of doom and gloom here.Yeah gonna be a little down turn in the ecomomy home sales and car sales allways lead us in.and there gonna lead us out.
Those of us that are old enough remember the oil crunch 74 to 76 then interest tates 79 to 82.Hell GM was going broke in the early ninetys.The doom and gloomers were wrong then, and thier wrong now.{I hope}
mikey, morbo, I hope the gloom/doom is wrong, too.
However, if you are sitting in a Kansas cornfield and you see a BIG storm coming up, is it
a) time to bring out the picnic, wine, women and song
b) time to look the other way and plug your ears
or
c) time to find a farmhouse and join the farmer in his tornado cellar? You know, “just in case.”
Here are some links. Only read them if you can face what may be home-truths about what’s going on around us, that the lame-stream media and wall street just ignore. And we all know wall street has such a stellar record of always making money for investors, right? Right (more kool-aid please)
http://www.goldcentral.com/gold-coin-content/backgroundstories.html
Oh by the way, if you read all of the articles in the link (not just the top one), you’ll find genuine differences in opinion even in the world of gold-bugs.
All we can do, is brace ourselves as best we can for a downturn, and hope that it isn’t as bad as it was for our grandparents 1929-1941.
Of course there are some who say we’re still in the big depression IF you take into account that people back in the day used to use mostly cash to purchase things.
Put another way, how many of us have enough cash on hand to buy a house? How about a new car?
My grandfather (b. 1883, d. 1974) bought a farm, paid it off, then built a house – cash – no debt, before he got married. Yep, as was typical for the day, he married late and there was a fairly large difference in age between he and my grandma. His first car? A new 1926 Ford Model T touring car. He paid cash for it.
You know, they said on the Discovery Channel that a big asteroid might hit the earth someday and wipe out all life. I think I’m going to look into buying some gold. :)