The analysts at Credit Suisse (CS) get no points for predicting the continued cratering of the U.S. car market [full report after the jump]. But one has to wonder just what in the Hell GM was thinking when it predicted 12m unit sales in the U.S. as late as late summer. No matter how you cut it, or what incentives GM’s offering, the American automotive industry is looking at sustainably low numbers. And speaking of “sustainability,” CS is now starting to factor in consumer fears of bankruptcy. When the words “bailout backlash” start to appear, as they surely will, it’ll be all over bar another $50b or so in taxpayer subsidies. Sorry, loans. Meanwhile, there is some good news here: CS reckons The Big 2.8’s production cutbacks will clear their 35 percent overstock. And “all else equal, GMAC’s increased access to funding could increase GM’s sales by several hundred thousand units in 2009.” Good luck with that.
• We expect light vehicle sales to run at an annualized pace of between 10.0 – 10.3 million units in December, the midpoint of which would be down slightly from November’s 10.2 million rate, and down about 37% from the year-ago month’s 16.0 million. Unit volume should fall by about the same amount.
• We project a further increase in the truck mix, to around 52.5% in December, from 51.9% in November. The increase is mainly being driven by consumer reaction to lower gas prices.
• Higher truck mix benefits the Big 3, but sales will still be down sharply based on weaker industry demand. Also, GM and Chrysler should still show the effects of consumer’s balking at buying their vehicles based on bankruptcy fears, though the effect should be diminished relative to prior months.
• We see December sales at GM down 34% – 35% versus like-2007. Market share should bounce sequentially, to as high as 23%, up from 20.5% in November. The forecast sequential increase in share is driven in part by the diminishing payback effect from a prior incentive event, and in part by higher light truck mix.
• We see Ford sales down in a range of 32% – 34% versus December 2007, with market share of around 15%. That would be a modest decline in share versus November, but an increase from Ford’s year-ago share of 14.0%.
• Foreign brand sales should be down in a range of 35% – 37% in December, with market share falling to about 50%, from about 52% in November. It’s normal for foreign brand market share to decline from November to December, with the average decline being about 130 basis points.
• Big 3 inventories should end the year about 35% overstocked, consistent with our December 18 forecast, but sharply lower Q1 production schedules will likely clear those excess dealer stocks.
• On Monday (29th December) night the US Treasury announced a $6 billion capital infusion into GMAC. GMAC, in turn, announced that it would extend retail vehicle financing to customers with credit scores of 621 or above, an expansion versus the prior minimum score of 700 put in place a couple months ago.
• All else equal, GMAC’s increased access to funding could increase GM’s sales by several hundred thousand units in 2009. The extra contribution from those units is not enough to change our view on GM, which is likely to ask the UAW and bondholders to sacrifice a combined $34 billion in value as part of a Government-sponsored balance sheet restructuring; this will crowd out just about all of the existing equity value, in our view.
One has to wonder what GM thinks, period.
Credit Suisse came up with an innovative compensation system for their top executives. The bank will use leveraged loans and commercial mortgage-backed debt to fund executive compensation packages.
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=abJOQQI18SAE
Maybe certain GM executives should be paid in a similar way.
How does GM get it’s fixed costs low enough to make money in a 10M US auto market? Can they get there from here by shutting down plants, laying off employees, and delaying or canceling part of their product development?
I do like Credit Suisse’s approach: deliver crap value, and that same pile becomes your bonus.
But then Credit Suisse is also in meltdown mode, which makes one ponder their ability to correctly make any financial predictions…
“But then Credit Suisse is also in meltdown mode”
Really? The company has taken no bailout money from the Swiss government (unlike UBS) and was recapitalized to the tune of about $11 billion from existing investors just last month. Yes, they’ve lost money. And yes they’ve laid off people. But I challenge you to name a big FS firm that hasn’t lost money or laid people off.
No prize for projecting the crash. Bonus points for measuring the crater. I think 10 million has to be the new base case. Meaning the worst case should be around 8.5 or even less.
“One has to wonder what GM thinks, period.”
I if GM thinks, period.
Rix: I got the under.
Here is what I think. red tag prices, are too much for American cars. If a 2008 Cadillac DTS with 13,000 miles(I almost wrote DDT) is on my local chevy dealer’s lot for $25,900 (price when new last March $49,000) what is the correct value for this car? Can any “employee discount” (should be called owner discount as all of us taxpayers are now owners and funders of GM) which is say $10,000 per caddy. be enough to justify this purchase.
what would be enough to cover first year depreciation? If the auto writers say the new hyundai genesis is not perfect you ought to read what they say about the DTS (a $10,000) more expensive car. But then not really, since you get your “owners” discount of $10,000 per new caddy. Finally, shouldn’t we get a certificate of non voting preferred stock from the US govt for GM Chrysler and all of our newly nationalized factories? At least I can put it in my portfolio and take it out and look at it.Finally, I can take it to my GM dealer as proof of entitilement for my discount. Uncle Sam, Let’s print the stock certificates now.