Not only does Richard Colliver admit that ’07’s sales were a bubble– a bubble that has permanently popped– but the executive vice president of Honda America says the bailout billions thrown at banks, aspiring banks and automakers hasn’t had any impact on the credit availability underpinning the U.S. new car market. Colliver also told Reuters that HoMoCo’s given up forecasting ’09 sales. “We’re not even forecasting because whatever we forecast, we would be wrong. If you look at the last 120 days, if that trend continues then we’re looking at a significant reduction (from 2008).” So Honda’s battening down the hatches, cutting inventory to 65 to 70 days of supply in the next three months (from the current 100 days). At the same time, Honda’s planning on boosting its leasing penetration from 23 percent to 27 percent of total U.S. sales. As for the impact of Motown’s meltdown on Honda…
John Mendel, executive vice president in charge of Honda’s U.S. sales operations, told Reuters that it’s a small world after all. He pointed-out that a “major disruption” for a U.S.-based supplier would hit all U.S. automakers-based hard.
Even so, Mendel struck a cautionary note re: Uncle Sugar’s multi-billion dollar largess. “To the degree that that aid assists in bridging for a period of time when the liquidity for those manufacturers improves, that’s a good thing. If it’s just about liquidity, it’s fine. If it leads to advantages in financial markets or those kind of things, that’s a little bit different issue.”
GMAC much?
You have to love a company that is taking a very tough situation very seriously.
Honda is simply confirming what we’re already seeing at the auctions.
There is no tangible market out there due to the fears and uncertainties of the times. We’re at the beginning of a massive level of unemployment in the private sector, and the new president-elect policies will take at least two years to have a hold on our economy.
While I do understand Mendel’s concerns on the shimmering surface, Mr. Lang’s experience illuminates the reality of the deep blue sea.
Uncle Sugar could strap on the milking machine and jam the hose directly into the mouth of GMAC.
GMAC could lower qualifying scores to 400. It may produce a short sales blip. Followed 6 moths later by a concommitent bump in repo traffic.
As unemployment numbers continue to rise over the next 6+ months, the non-essential sale will become an oddity. There will be sales, but the numbers look more bleak with every passing day.
Prepare for 4-5M annual units in North America…
Oh good grief!
It’s just so easy to play hell’s cassandra.
Sure it’ll take a while, but it’ll be a while. 2007 will be back come 2010.
C’mon, the US ain’t Europe. The population grows naturally and people still need nd want stuff.
Houses and cars included.
Have a little faith.
2007 levels by 2010? I doubt that.
I doubt 4-5 million either.
People on both sides of the car buying process will be a bit sobered up for a while after this, and neither will be willing to jump into the deep waters. It will take awhile for the caution learned from getting burned to wear off. Off the cuff, I’d think 14 million would be a good number for what sales will be in a good economy without the domestics pushing the metal as hard as they can without regard for the long term consequences.
When the survivors emerge from this apocalypse, none will have, nor have any interest in acquiring, the sort of fixed overhead that would require them to toss their brands resale value and any fiscal caution to the wind to reach the volume they need to sell beyond prudent market demand. Nor will any banks be interested in financing such recklessness, at least not with their own money. The levels the market reached in 2007 were heavily influenced by the domestics desperate attempt to maintain market share.
It’s just so easy to play hell’s cassandra.
What’s easy is to play Polyanna. Many have been pretending that this party can just keep going.
Unfortunately somebody has to pay the bill for the last 8 years. That somebody is us.
toxicroach:
I agree really, 2007 will be exceptional, but it won’t be exceptional forever. That’s what I wanted to say. Different countries, different markets and all that, but, for example, in my country, if 2009 sales drop 40% regarding 2008 (the best in history here), it’ll will still be the 3rd best year ever. 3rd best! So I do not sympathize with these crying, crinhching, gov-ment money grabbing auto execs.
porschespeed:
Don’t want to be Polyanna either, but the world has never been richer. Real progress has been made in the 3rd world, and real money has been brought into the new economies. So yes, even if the US and Europe suffer a little longer, demand from 3rd world will eventually compensate any ahortcomings in term of demand from the 1st. Wait it out and see, thing will get better sooner than what you may expect just because of this. A great number of new peopole have been included into the world’s buying public (those with disposable income) and those will keep on buying.
Though I ain’t wearing any rose colored glasses. Sales will fall, though I doubt around 40% like the cassandras wail. 20% sounds more like it, and by 2010, even if 2007 (in the US) or 2008 (in Brazil) sales will be hovering really close to those numbers.
At least, yes I hope so, but based on my experience I beleive that will be the case.
Cheers and a happy an properous 2009!
FromBrazil,
While I would love to share your optimism, I think you are missing some things that have happened.
By most conservative counts, $45+ TRILLION has been erased from the imaginary ‘net worth’ of the world economy.
Further, and far more importantly, wealth has been shifting over the last 20 years to a smaller and smaller number of people. Para todo el mundo.
Someone who has 100 times more income than the average person does not consume the same items that 100 people would.
Further, lets presume that the average 3rd worlder had their income grow ten-fold in the last several years. (They didn’t, but let’s pretend.) That means they went from $30 a month, to $300. What are they going to buy with all that money?
As you well know, the Brazilian economy is somewhat different than the US/EU economy.
Just curious, Sao Paulo?
Nope. Belo Horizonte, Minas Gerais (in car-talk the home of Fiat’s biggest and best plant, actually one of the world’s largest capacity plants, or so I’ve heard). And as you seem well informed, you’ll know my state depends strongly on exports of commodities (iron ore, coffee) and cars (fiats, of course to all of Latin America, Africa, Asia and some to Europe). As you see, things don’t bode well for my region…
When you talk about the amount that’s disappeared, I agree. But we have had some “real” investements, ArcelorMittal is doubling their capacity in the state and Fiat has been pouring at least a billion Euros worth of investment every year. For “real” things like factories, warehouses, help and qualification to suppliers, etc. And beleive it or not, I actually talked to the CEO and president of Fiat Brazil over the New Year, face to face, and he denied any scaling back in investments, pointing out to me that 2009 stands to be the 3rd best year in history for our car makers (as said above).
As to concentration of income, Brazil is imfamously ranked as the 2nd most concetrated in the world *sigh*. Pitiful. But apparently changing. In this country in 2008 we experienced a shock of labor shortage. There were just not enough engineers, chemists, not to mention bricklayers or truck drivers. These peoples incomes doubled or tripled. Never seen anything like it! BTW the avearge workers salary is more like 600 dollars a month. Bad, sure, but just 10 years ago it was more like 150 dollars. And as a whole the average per capita income is increasing to slightly above 3000 dollars a year, which has been historically the point after which developing nations catch fire and really get cooking.
Anyhow, I live in an apt building with 24 apts and about 38 cars (yes almost 2 cars for every family, the garage is all filled up, but luckily there are not so many families with kids reaching 18 as parking in the bldg will become problematic soon). About 10 brand new cars were bought last year (substituting older models). Seems like a healthy rate.
So I remain optimistic. Many publications (like the Economist, Time) have said that of the BRIC, India and Brazil will ride out this wave better as they are less dependent on external markets, and their internal markets are still vibrant and growing.
I’m keeping my fingers crossed because we will ride this out, the US will be back in2010 and Europe a little later. More conservative, more down-to-earth. But that ain’t no bad thing!
Cheers!
@FromBrazil,
Ah, Belo Horizonte, capital of Minas Gerias? I’ve heard nice things.
Just a personal thing, but I don’t count Brazil as third world anymore than I would count Argentina. The remote parts, sure. But overall, to my thinking, a developing economy. As long as the politics stay stable.
Entirely possible that things will go better for you than for us in the USA. We have borrowed a LOT of money to sustain an unsustainable lifestyle. We gotta pay some of our bar tab before they let us start drinking again.
Best of luck, regardless!
@ FromBrazil
Thanks for posting. It’s really interesting to read other perspectives especially from the Southern Hemisphere.
re: “Unfortunately somebody has to pay the bill for the last 8 years. That somebody is us.”
porschespeed / January 11th, 2009 at 10:33 pm
porschespeed’s remark is absolutely correct.
just out of curiousity, did anybody here watch either of cnn’s special televised presentations of ‘I.O.U.S.A.’ this weekend?
according to the film, usa taxpayers are now already on the hook for some $53 trillion, resulting from current, future and past financial obligations combined – a declaration which was not challenged or refuted in any way, by any of the four, high-profile, financial ‘experts’ who took part in the televised discussion that was an important part of this program, nor questioned by either of its two hosts.
i, for one, do not intend to buy any sort of automobile any time soon. i’ll be spending my money on comfortable walking shoes instead.
@ philipwitak
Ha! I was reading the book but got too depressed.
There is a 30-minute version on the net.
I can remember when people thought 14 million cars sold in the US in one year was impossible. They also couldn’t imagine over 300 million people in our country either. The debt from the Depression, WWII, the Korean War, the Cold War, the Space Program, the Vietnam War, the Reagan defense budget, the Iraq war, etc., etc. would finish us. We will do what we always do: grow our way out of our problems.
The future can be bleak if everyone believes it will be. Fortunately, we have a pretty good track record of Americans tiring of feeling poor, at which point they get economically engaged.
Market May Never Recover to ‘07 Levels
Never is a long time. The US is headed for 400 million people before 2050. We’ll see an 18 million new car sales year by 2015.
Phil
Germany is currently running on around 3 mio vehicles per year. As the US is about 4fold in population, that would equal to about 12 mio vehicles in the US. And that would certainly suffice to make up for the need in cars as such.
And why should the demand go much beyond that? The D3 have created a bubble by giving credit to about everybody. It was just cheaper to get rid of your old car after a few years by buying a new one. All this was sponsored by the losses of the D3, and now will be sponsered by government. However, government cannot allow that taxpayers money will continue to be spent like this. So, the times of the credit fueled car bubble are over, and may never recover. 12-14 mio cars for the current population, and growing – if at all – only in line with population growth. Anything more is dreaming.
@ TireGuy: Germany also has forced obsolescence via its safety inspection program, which creates artificial demand for new vehicles.
I suspect that such “safety” programs (perhaps with a bit of an emissions spin) might be implemented here in the US if the sales slump drags out for too long. There’s little other reason for Americans to be buying new cars so frequently.
porschespeed:
“It’s just so easy to play hell’s cassandra.
What’s easy is to play Polyanna. Many have been pretending that this party can just keep going.
Unfortunately somebody has to pay the bill for the last 8 years. That somebody is us.”
F* that. Wait till you see the bill for next 8 years. You will think this is “the good o’le days”.
Eric Bryant :
January 12th, 2009 at 9:23 am
@ TireGuy: Germany also has forced obsolescence via its safety inspection program, which creates artificial demand for new vehicles.
I suspect that such “safety” programs (perhaps with a bit of an emissions spin) might be implemented here in the US if the sales slump drags out for too long. There’s little other reason for Americans to be buying new cars so frequently.
The inspection (so called “TUEV”) is certainly not unnecessary so it does not create an artificial demand. The TUEV checks whether your brakes work, whether the tires correspond to the legal requirement, whether there is rust through the floor or any structural parts. If anything, the TUEV makes the cars more durable, since they get repaired in time. Only a small amount of cars does not pass, and only after being in service for a long time. My 11 year old Golf passed last year e.g. without reserviation.
In the US, many buyers have changed cars already after 4 years, which is totally unnecessary. The average was 6,2 years (as I remember). In Germany, it is 8 years – which is fine, considering the quality of cars (other than D3) today.
The TUEV costs money, and with an old car it is not an insignificant cost so it does force people out of beaters
I think 14M will be the norm we return to in 2010, and not because of interest rates, GDP growth, unemployment or any other economic variable.
My math is based on the number of drivers in the US (200M) and the average longetivity of vehicles (17 years). Divide one by the other and you get annual sales of 12M vehicle necessary to replace the fleet.
Add an additional 20% for families that want a third vehicle, and you get 14M. This figure will stay relatively static as improvements in vehicle longetivity are balance by growth in the population.
So what changes from the 17M of 2007 to the 14M of the fututre is that the bottom end of the market goes away. The Aveos, Calibers, Patriots, Rios, G5’s, stripped Rams, and so on go away, because buyers can get better quality CPO product cheaper.
charly :
January 12th, 2009 at 1:15 pm
The TUEV costs money, and with an old car it is not an insignificant cost so it does force people out of beaters
The TUEV costs as such are insiginificant – about 55 Euro every two years. The only expensive effect can be that the TUEV will require you to repair a dangerous vehicle – which should be fine with everybody, as it protects the driver itself as well as all other people.
55 Euro for a 17 year old car is a lot. And it is also not true that the TUEV checks if a car is save. They sell it that way but for tires etc. you can add a few months and that makes a big difference with a car that can die any moment.
F* that. Wait till you see the bill for next 8 years. You will think this is “the good o’le days”.
@windswords,
I feel ya. It’s just most people don’t even realize (or admit?) where we are. Let alone where we’re going. Baby steps, and all that…
@Eric Bryant,
IIRC, the structure of Germany’s tax laws are a driver for a goodly percentage of sales. That is, lots of people get a (nice) company vehicle in lieu of wages.
John Kenneth Galbraith once remarked that economists predict not because they know, but because they are asked. (Seems like we’d stop asking, given their track record)
Honda had one thing right – whatever number they forecast is going to be wrong.
I tend to agree with FromBrazil and Phil Ressler, though I’m perhaps just a bit less optimistic about 2010. I think we’ll see years about as good as ’07 again, and not a long time from now.
My reasoning is this: much is being said about a new personal fianancial conservatisim, and I think it’s true – which essentially is only a return to “normalcy”. Back in the ’60s, credit wasn’t any easier than today, -less so actually because of an old fashioned thing called down payments – but people bought new cars, even before the old one was worn out.
As already mentioned, the country is growing, and the population expansion will make for a market expansion.
The “mood” will change in a couple years when the neo-WPA programs begin to provide the stimulus we need.
’08 was rough, and ’09 looks to be worse. If we have third bad year in ’10, that will mean that lots of people kept their old buggies longer than intended. When confidence returns, people will want to replace their ageing vehicles. There always seems to be a boom and bust cycle – a really good year is followed by a few bad ones, then things pick up again.
This downturn is going to be worse than we’ve seen in a long time, I’m guessing, but it’s not going to mean a new permanent improvrishment.
> Add an additional 20% for families that want a third vehicle, and you get 14M. This figure will stay relatively static as improvements in vehicle longetivity are balance by growth in the population.
Interesting observation. I hadn’t thought about increasing longevity of cars.
FromBrazil said:
C’mon, the US ain’t Europe. The population grows naturally and people still need nd want stuff.
Houses and cars included.
It’s one thing to need and want stuff. It’s another to be able to afford it. They shouldn’t get what they want, when their income level doesn’t justify it.
I seriously need a 10,000 sqft house and 3 gorgeous wives, can Mr.Obama help me with that?
Old joke:
Q: What did people call “The Good Old Days” back when they were experiencing them?
A: “These troubled times.”
Beware of drawing trend lines by extrapolating from two data points. It’s even more dangerous when extrapolating from a single data point, like the media tends to do.
I am taking World Geography this winter session, and as luck would have it, (and FWIW) yesterday’s PPT lecture by the prof had this data:
Source: UN human development report 2000, tables 4 & 5
ratio of richest 20% of population to poorest 20%
Bolivia . . . . 9:1
Brazil . . . . 26:1
Chile . . . . . 17:1
Colombia . . 20:1
Guatemala . 30:1
Mexico . . . 16:1
Peru . . . . . 12:1
China . . . . . 8:1
France . . . . 6:1
Jordan . . . . 6:1
Philippines . 10:1
Thailand . . . 8:1
Turkey . . . . 8:1
Canada . . 5.2:1
USA . . . . . 9:1
Brazil is 26:1. Wow, imagine how many more cars would be sold in Brazil if their income distribution was more like the USA, or France.
Well now even Honda has to tell you the truth. Its the financial markets. Hmmmmmmm The whole time you want to blame Unions and the American worker. Like I said before you need to do more research before you blast your mouth. I am sure if you keep on your course everone will soon see that your anti-american stance has become a fly on the cake and then you can go look for a new position in China.
scartooth :
January 21st, 2009 at 5:42 am
Well now even Honda has to tell you the truth. Its the financial markets. Hmmmmmmm The whole time you want to blame Unions and the American worker. Like I said before you need to do more research before you blast your mouth. I am sure if you keep on your course everone will soon see that your anti-american stance has become a fly on the cake and then you can go look for a new position in China
Have you really read the article of Robert and understood it? The Honda VP stated that sales in 2007 were a bubble – being exaggerated by credit which should not have been given. If anything, if you have a bubble – you should make huge profits. GM and Co. did not even make a profit during bubble times, which proves that their whole business model and structure is doomed.
The return to normal non-bubble levels – felt as a recession – now shows who is viable. And GM is certainly not, for all the reasons described by TTAC time and again.
GM should be honest to itself and all stakeholders, including the taxpayer. That means: GM is not viable without a CH11. Go for it or die. But leave the coffers of the taxpayers alone.