Remember the “worst case sales scenario” in GM’s viability plan? It predicted 11.5m annual sales in the US. Unless a turnaround arrives sometime this year, there’s no chance that sales will hit that number. According to Automotive News [sub], annual sales expectations for 2009 have dropped to 9.8m units. But there’s still a surprising amount of unfounded optimism among Detroit’s spinners and marketing mavens. Specifically, Ford’s execs say that retail sales have “stabilized” over the past four months. Too bad, then, that they’ve stabilized at an abysmal rate of 8.5m units per year. “We’re heartened to see it stabilize — although stabilizing at an awful level,” said Ken Czubay, Ford vice president of U.S. sales and marketing. Heartened? Seriously? But enough of the maudlin posturing. There are scapegoats to blame!
And unsurprisingly, the villain is the same malefactor that was blamed for bringing Detroit to its knees in the first place: the credit market. “People are coming in wanting to buy vehicles, and they are being turned down,” says GM’s executive director of global market and industry analysis Mike DiGiovanni. “We have to break and thaw the credit markets for consumers who want to buy automobiles. We’re seeing some minor thawing occurring, but it is not nearly enough.” This despite billions in TARP money flowing to GMAC and Chrysler Financial. And a host of indicators that show US automakers were in deep excrement before credit markets even began to seize up.
A sense of acceptance has set in. Chrysler’s Jim Press says “we need to recalibrate where the market is and stop dreaming about pent-up demand. Looking at the economy and taking a realistic view of the credit situation, there’s not a lot of reason to think the entire industry is going to have a lot of growth. We want to operate in a conservative manner.” Or, as Stephan Jacoby of the less-exposed Volkswagen Group of America puts it, “right now, we have no sign when the industry can improve, actually.”
This is not a GM problem. The economy is in full meltdown and GM is past the canary in the coal mine stage. The canary is dying and the government has no idea how to cure it.
If politicians were truly committed to getting money into the hands of the people that can get things moving again (consumers and business owners), they’d cut the payroll tax.
It’s immediate, it impacts nearly everybody (split the cut with both business owners and employees), and it doesn’t require a bureaucracy to oversee handing out money to people.
Occam’s Razor.
And that’s why they won’t do it. Nobody in government gets a job by cutting payroll taxes. Lots of excuses to not do this, but no good reasons.
Technically, that’s a Natalie Dee cartoon. Cite should point to http://nataliedee.com
I LOVE the illustration… :)
For five months now I’ve asked to see a viable “bridge” plan from GM and Chrysler at 9.325M unit U.S. sales.
What is so hard about that?
@Car person
Maybe because there is no viability for either company at that rate?
I think there’s considerable evidence that in the next 3 years, 3 car makers will have to merge or die.
So many mature markets (i.e North America, Europe, Japan, etc) are receding so much that they cannot sustain all the current manufacturers (you can call it a “market correction” if you want).
Now my next point is this:
Who will succumb to the global recession?
Detroit is almost finished, FIAT is 50-50, Mitsubishi might survive if merges with another smaller manufacturer and Mazda could be well and truly shagged as it is a niche player.
8.5M retail units is where it stablized. Much like the stock market is around 8000. I have no doubt the stock market will actually be higher by the end of the year. Just as I have no doubt that retail automotive demand will be as well. We continue to have this mindset 8.5M is where we’re going to be forever. Oil was going to be $200, no $250/bbl in July. It’s now at $40-ish. Housing prices will always grow 15-20% per annum. And now they’ve shrunk 20% YOY. At an 8.5M rate we are hitting scrappage – it’s really low, just as $147/bbl oil was artificially high. The first ray of light, and it will rise above the scrappage rate (that ray is probably continued “strength” in existing home sales, which will eventually stablize prices – it will be helped by the government bailout, whatever form it might take).
To be clear, I’m not suggesting we’re going to be at 16-17M next year. But, this whole “we’re stuck at 10M forever” attitude is really baffling to me. Just as home prices will stop falling. Just as the stock market will rise again. And I don’t think it’s some distant late-2010 timeframe. It’s probably more like late this year. February might force me to lower my forecast to 11.5-11.8 (it’s not starting particularly well), but that’s still far above all this negative prognostication.
I’ve read somewhere that we scrap 12.5 m cars a year, which seems a bit high. However, I have noticed used car prices (on the low end, late 90s models) are creeping up a bit.
Cite amended. Thanks, psarhjinian
@jkross22
As has been discussed many times before, we already tried the tax cut thing with the rebate checks from last year. It failed miserably, because people either saved the money, paid down debt, or bought largely foreign manufactured merchandise like electronics or clothing.
While these activities might be worthwhile goals from a microeconomic standpoint, they don’t do much for creating jobs, which is what our economy really needs right now.
Maybe they’ll create something like the Japanese zaibatsu, the industrial and financial conglomerates.
So you’ll get GM/Citibank/AIG, Ford/JP Morgan/Allstate etc.
Then the Fed hands a big check to the top company only, and the top one has to manage the companies down below. It makes Washington’s job a lot easier because it has far fewer companies to deal with, and it gives companies financial strength in depth, and there’s still competition between the groups.
RE: Stephan Jacoby: …“right now, we have no sign when the industry can improve, actually.”
He could start with customer service. View my VW experience at: http://www.reesphotos.com/VW/
“People are coming in wanting to buy vehicles, and they are being turned down,”
I believe GM just remembered why the created GMAC. If you’re writing the loans, you decided who to take and who to turn down.
It was big help during rough times like the Great Depression… Or the biggest down turn since.
A car company cannot exist without an in house finance company. To bad, GM let GMAC play house (mortgages) and handed its future to a three-head dog that guards the way to its ultimate demise.
@ Martin B
The industrial/financial conglomerates already exist here. All three Detroit automakers have captive finance arms (GMAC, Chrysler Financial, Ford Motor Credit). GMAC applied to become a bank holding company so that they could get access to TARP money. So there’ already money flowing in from all directions.
It’s possible that under all the other (real) stuff that’s going on that the USA has simply reached saturation for this market. Perhaps the mature market is actually somewhere around 8-9 million cars and we only exceeded it because of the easy access to credit (I see the easy credit of the past 10 years is an anomaly). I’m a late baby boomer, and I foresee that I will never own as large a fleet of cars as I own now and that I will not replace cars as frequently as I have in the past.
Sometimes businesspeople, economists, and politicians are right: growth is a good thing. But in nature things usually stop growing once they reach an optimal size or population. Continued growth is not normal in nature.
I’m thinking that 8-9 million cars a year is a “mature” level. Sure, there is always a requirement for replacement when they wear out, and some folks will want to upgrade periodically, but this is looking more and more like the refrigerator market. I have a refrigerator. I won’t buy another one until this one fails, becomes too expensive to repair, or operating costs (electricity) make it more economical to switch to a more efficient one.
I’ve read somewhere that we scrap 12.5 m cars a year, which seems a bit high.
There will be a large pent up demand when this thing finally turns around.
bluecon said:
This is not a GM problem. The economy is in full meltdown and GM is past the canary in the coal mine stage. The canary is dying and the government has no idea how to cure it.
This is not a GM problem. Instead, GM is the problem.
In a normal market economy, it works like this:
– Market down 30%
– GM and Chrysler out of business
– Everyone else back to normal
– Market back to normal
– Everyone else grows 30%+
Plan on low 9s for this year, 5% bump in 2010 and 7% uptick in 2011. That’s how this situation reads.
I work in an Acura dealership in the minneapolis area. Those buyers with decent credit 610 and above are getting credit. Those with bad credit arent. I think the “buyers” many of the auto companies are talking about, “not getting credit” are not credit worthy in the first place. I would say right now we are getting a larger than normal percentage of subpar credit applicants because so few good credit people are actually looking to get deeper into debt or are managing money better. Therefore it appears that a large number of able buyers are being turned away. Just cause you want to buy doesnt mean you are able to.
This is a direct result of the boomer bulge. The leading edge of the boomers are on their final vehicles. The large middle might get one more but there’s no rush. With all the credit shenanigans from the last decade there’s a lot of fairly new metal out there. The trailing edge has battened down the hatches. Gen XYZ are doing their things, just like the boomer did, but on a vastly smaller scale. 17.7m might be the peak that the market will never reach again.
I have a high enough credit score to qualify for a new car loan today BUT…
1) My 98 Toyota and 2004 Hyundai have been dependable, if boring. Baring an accident, there is no compelling need to replace them this year or next.
2) I still have a job but work in manufacturing so I’m a little nervous about losing it.
3) Any extra money I get, including the $500/$1000 tax credit that is/might be in the Stimulus Plan will go toward paying down debt.
4) When I do buy my next vehicle, the only Detroit automaker I will consider is Ford. I used to be a fan of GM but my last GM vehicles are the reason I have a Toyota and Hyundai in the driveway. I would not miss Chrysler, either.