Analysts (this armchair pundit included) are busy re-calibrating their expectations of the U.S. new car market post-Cash for Clunkers (a.k.a. C.A.R.S.). The big question hanging over the proceedings: has Uncle Sam [re]created a new car bubble? And, if so, what happens when it bursts (as bubbles are wont to do)? And if so, when? Meanwhile, we’re getting answers to some of the other ponderables, such as who benefits most from taxpayer largess? In a nutshell, not the domestics. Credit Suisse First Boston weighs-in with their take on the C4C tsunami.
We expect the annualized light vehicle selling rate (SAAR) to run in a range of 12.1 – 12.4 million units in July, the mid-point of which would be about 3% below the year-ago pace of 12.6 million, and up sharply from last month’s pace of 9.7 million. We expect unit volume (selling day adjusted) to be down in a range of 4% – 6% versus July 2008. That compares to a year-to-date decline of 35% through June.
• This sales forecast required a little more estimation than normal, on two fronts. First, the BEA has not yet posted the July seasonal factors to its website. So we came up with our own factors by averaging the past July factors, but we stuck to those years when July had 26 selling days.
• The bigger wildcard in forecasting July sales is the impact of Cash for Clunkers. Company contacts, dealer contacts, media reports, and government officials are all reporting the $1 billion allocated to the Clunkers program has been exhausted. Assuming an average scrap incentive of $4,000 per vehicle, that would translate to 250,000 light vehicle sales attributable to the Clunkers program.
• We have made a few assumptions around the actual number of Clunker-related sales that will be entered in the month of July. These assumptions are discussed in detail in the report. In the end, our sales forecast is based on a base run rate of sales in a range of 9.5 – 9.8 million, plus an incremental 235,000 units. We also assume the domestic brands garner 40% of the Clunkers trade-in business, while the import brands take 60%.
• Assuming that our sales forecasts are roughly correct for the month, and that the automakers build approximately to Ward’s July production forecast, we think Big 3 inventories are likely to end July about 20% understocked. Specifically, we see GM dealer stocks ending the month about 13% understocked, Ford inventory ending July about 24% understocked, and Chrysler ending the month about 31% understocked.
• If we assume 1) the SAAR can maintain a pace of 12.0 million units, on average, in Q3, 2) that Q3 production is consistent with Ward’s third quarter production forecast for GM and Chrysler, and 3) that Ford builds consistent with the company’s latest production forecast of 485,000 units . . . then Detroit 3 dealer stocks could end September about 30% below normal.
• This would leave significant upside to the production schedule that we used in this inventory analysis. That production outlook calls for Q3 output to be down about 25% year-to-year, but that could improve greatly if Clunkers can drive a Q3 SAAR of 12.0M.
The NHSTA says the top-selling C4C vehicle is the Ford Focus, and that domestics are taking 47%, slightly higher than their 45% market share.
http://www.autoblog.com/2009/08/03/report-ford-focus-is-top-selling-cash-for-clunkers-car-nearly/
The real story here isn’t imports vs. domestics, it’s Hyundai and Ford vs. everyone else. The former have seen a huge pickup from C4C, the others less so. Toyondassan aren’t doing much better than GM in sales numbers vs. last year. Again, Ford and Hyundai are the automakers to watch coming out of the recession.
As usual, between the gov’t and their captive parts of the industry they can’t organize a bottle party in a brewery.
It’s pretty clear that the numbers suggest that even if there was models qualifying for CfC, there wasn’t enough on the ground to satisfy the market and it went elsewhere. And, again as usual, still lots of nonqualifing fare out there.
Welcome to the “new” car industry: wrong product mix, bad product and not enough of the right product. Hurray for our side!
To date the C4C program has worked as designed, only better. The only disaster is that it is proving even more popular than expected. Every dollar the government puts into this is being matched with at least two more dollars put up by the buyer. The sales taxes, registration fees and income taxes being collected nearly equal the incentive money being handed out. Dealers have stopped firing people. That means fewer unemployment claims, fewer new food stamp users and so on.
The only thing to hate about this program is that the government is in the middle of it. As long as you hate it when the government starts wars; you are on solid ground hating this program as well. But don’t give me that kids and grand-kids will have to pay the bill argument unless you opposed the Iraq war on financial responsibility grounds.
You want to correct the headline Farago? It has been confirmed that 47% of the C4C money is going domestic.
Who cares if it’s 60% or 53%. The point is that more than half of all the damn money being poured into this program is going into the pockets of the transplants.
The only thing to hate about this program is that the government is in the middle of it. As long as you hate it when the government starts wars; you are on solid ground hating this program as well. But don’t give me that kids and grand-kids will have to pay the bill argument unless you opposed the Iraq war on financial responsibility grounds.
I despise this program, and I also despised the Iraq war on largely fiscal grounds. I hate the fact that my tax money is being used to prop up several incompetent, irrelevant, and inefficient corporations that should have been allowed to croak. I could care less about the declining unemployment claims, food stamp demands, etc since the program is essentially being used to prop up an overheated sham economy that should have been allowed to normalize itself.
But hey, it’s great as long as it makes greed less painful, right?
Who cares if it’s 60% or 53%.
It’s called The Truth About Cars for a reason. It’s not always on target, but when the aim can be corrected, it should be.
I hate the fact that my tax money…
It’s not really your money anymore. Once you gave it to the government via taxes, it became the government’s money. If you don’t like it, vote differently next time.
Massive government intervention in the automotive industry will and has affected what vehicles will be offered. TTAC is good about documenting this.
Cash for Clunkers or CARS is another example of this high-minded meddling. We don’t know the full effect of this distortion onthe marketplace. Something will have to give later, when the taxpayer incentives are gone.
As for transplants getting 53% of the CforC money, the people who bought cars using the program voted with their wallets. If 53% chose a vehicle built by a transplant or importer, then the reality is that those dealers had something on their lots that appealed to those buyers.
The Subaru dealer I’ve been dealing with is a small one, only has three sales people working normally. They have been crazy busy, working 12 + hrs. a day. They are essentially sold out of Foresters where they normally have a dozen or more on the lot. The manager told me they sold 6 cars just yesterday morning. The used car manager that has been helping them out, we’ve been working with him on our Forester that he got for us from another dealer in town, told us to take it home for a “24 hr. test drive” to get it off the lot so one of the guys wouldn’t sell it (we haven’t signed anything yet, so it is vulnerable).
Obviously they have something that the others don’t. This is our first time looking at a Subi and we have been very impressed with what we saw. Have had Fords and Toyotas lately but didn’t want to go back to that. And they treated us well and have been patient with us getting the documents for our clunker.
Every dollar the government puts into this is being matched with at least two more dollars put up by the buyer.
In other words, taxpayers are paying at most ‘only’ a third of the cost of the new cars that clunkers program buyers are driving off the lots. I feel so much better now.
You know what, lets expand the program beyond cars. If I can get the rest of y’all to kick in a third of the price, I’ll be more than happy to come up with the rest of the cash to buy a new car or a new flat-screen TV or a new computer, or…any number of things.
Which is actually, you know, good for y’all because it will stimulate the economy and reduce unemployment. The brilliance is in the simplicity really — just send me money and I’ll spend it. How could you argue with a successful government program like that?