Last week, we looked at the impact of the Housing slow down on various economic sectors.
When we mentioned automobiles, one of the common responses was that its GM/Ford specific, and Toyota was doing just fine in the US. The blame was that GM made lousy cars.
It turns out that glib answer was totally wrong. As the chart nearby shows, total car and light-truck sales fell 7.6%. This is an issue that is impacting just about ALL makes and manufacturers, not just GM. Even mighty Toyota sales dropped 4.3% in the U.S.
Against the overall trend? Bentley and Ferrari are sold out for the year, but they are a hand-crafted, small volume, luxury exception.
Here’s a WSJ excerpt:
"The results also demonstrate the challenge the U.S. economy poses to more-successful Asia-based competitors like Toyota Motor Corp., which posted its first monthly U.S. sales decline in nearly two years. Toyota, which recently surpassed General Motors
Corp. in global vehicle sales to become the world’s No. 1 auto maker,
had been increasing sales earlier this year even as Detroit struggled
and has continued to invest in auto-making capacity in North America,
the world’s largest car market.Toyota’s sales in April fell 4.3% from April 2006,
according to Autodata Corp. Ernest Bastien, a U.S. Toyota executive,
said consumers appear "tentative" and are exhibiting a "wait-and-see"
attitude.The housing slump and rising energy prices could
threaten industry sales the rest of the year. Stagnant or falling home
values could undermine consumer confidence and put a financial squeeze
on consumers who have used home equity to finance big-ticket purchases.
Higher gasoline prices and a drop in building activity hurts demand for
the industry’s biggest, most profitable vehicles. And some in the
industry are concerned that the bite gasoline takes out of consumers’
pockets is beginning to affect the sales of all cars, not just
gas-guzzlers.
How did other automakers fare? Ford reported an April US sales decline of 13% y/y. Ford car sales declined 23.6%: truck sales declined nearly 6%. GM fared marginally better — sales declined only 9.5%. Daimler Chrysler sales actually increased 1.2% — and you can be sure the grwoth was MB, not Chrysler. The vaunted Japanese automakers did not do much better: Toyota down -4.3% — their first monthly decline in 2 years; Honda slipped -9.1%; Nissan dropped a whopping -18%.
The intellectually dishonest can blame this on GM’s "lousy cars" but the facts uterly belie that nonsense. Growth continues to decelerate, and with the Housing ATM ebbing, car sales are being impacted.
>
Source:
Economy Trips Up Auto Makers’ Sales
MIKE SPECTOR and JOHN D. STOLL
WSJ, May 2, 2007; Page A3
http://online.wsj.com/article/SB117769686725985057.html
“Higher gasoline prices and a drop in building activity hurts demand for the industry’s biggest, most profitable vehicles. And some in the industry are concerned that the bite gasoline takes out of consumers’ pockets is beginning to affect the sales of all cars, not just gas-guzzlers.”
So, I guess its a given that gas-guzzler sales have been off for quite some time now.
Then how can it be that Gasoline demand is supposedly so strong in the US? I just not buyin’ it.
Shouldn’t the reduction percentages be inceased another 14% to reflect the hedonic adjustment value of the cars we didn’t buy?
Does this mark the start of the bull market for bicycle manufacturers?
tjofpa,
It depends on who you want to believe to support your preordained conclusion.
Do you “buy” the auto sales numbers or do you buy gas “demand” as a stand alone number without knowing supply? Isn’t supply the other side of demand? If supply is weak then demand may be strong without being strong compared to previous periods of time.
While you blame this on the housing market, Barry, I find that the sales number chart you’ve posted shows a correlation with the returns of the stock market over the past year.
Up in early 2006, sharply down beginning May 2006, bottoming in August 2006, sharply up beginning in August 2006, dropping off in late February and March 2006.
Perhaps next month we will see the sales numbers tick up again, along with the stock market? That would seem to validate this correlation.
I had previously hypothesized that MEW extraction, instead of having a direct bearing on consumer spending, had a secondary, unmeasurable effect by reducing short-term debt obligations that allowed consumer spending to continue at the same pace. The argument continued that over time we should see a steady increase again in short-term debt obligations as the consumer returned to his short-term debt average mean to sustain the status quo of an expected lifestyle.
Seems there is early confirmation of this concept when you add cars sales decline (MEW-big ticket) plus credit card debt (short-term debt) and compare to this AP release:
“During the first quarter, MasterCard said 2.5 percent of the increase in revenue was driven by the movement of the euro relative to the dollar. The U.S. currency recently plunged to an all-time low against the euro.
The amount of money cardholders charged increased 16.4 percent during the quarter to $509 billion. There was also a 19.4 percent increase in the number of transactions processed to 4.2 billion.”
If you could charge a new car on your credit card and then make minimum payments
forever, I bet the car numbers would still be up.
My brother-in-law sells Volkswagens and his dealership has become a ghost-town, near zero sales. He talks a lot with the customers and said in the past nearly every one was buying through a home equity loan, now the customer has just gone.
My brother-in-law sells Volkswagens and his dealership has become a ghost-town, near zero sales. He talks a lot with the customers and said in the past nearly every one was buying through a home equity loan, now the customer has just gone.
I would appreciate some insight from readers into the auto industry in general.
I find it impossible to separate the issues of MEW slowdown, higher gas prices, higher quality (longer lasting) autos, and cyclicality (didn’t auto sales expand well above population growth for many years in late 90s?).
Thanks,
at some point, so many numbers will be pointing in the same direction that these ‘but if you look at this in a way that ignores everything we know about turning points…’ arguments will finally stop.
I guess we can all keep jousting until then. at least until the last leg up in the stock markets finishes this summer or so.
anybody get one of those sold-out bentleys with their bull market winnings? always liked those cars.
Bingo, Craig.
Exactlty the word that comes to mind. “Preordained”
Gasoline at $4 Coming to a Pump Near You, Unfazed by Rising Tab – Bloom
http://www.bloomberg.com/apps/news?pid=20601109&sid=afOlUzd30YOo&refer=news
But I didn’t say a word about supply, only commenting on demand.
“Fuel prices are rising at a pace not seen since Hurricanes Katrina and Rita knocked out a third of the U.S. oil refining industry in 2005. Gasoline consumption is climbing twice as fast as last year and will accelerate when summer travel begins late next month.”
Nova said: “I find that the sales number chart you’ve posted shows a correlation with the returns of the stock market over the past year.”
So people are using stock returns to buy cars? Ferraris maybe.
tjofpa,
No new refineries + countless different reformulated gasoline blends = lack of supply = “demand.”
The problem with modern-day stock bulls is that they’re intellectually disingenuous.
Just say, “I think the market goes higher just ‘cuz;” it’s the only answer that bears any resemblance to the truth…
I have to disagree with you. Your numbers are wrong, because you are comparing apples to oranges.
April 2007 had 24 business days, April 2006 had 26 business days. That 2 days less. To deal with these discrepencies, the correct measure is: Daily Sales average Rate [DSR].
When you use the DSR, Toyota sales did not decline, actually a very slight increase.
Biggest Winner
Jeep 40% at 41,200 (4/06: 31,885)
Biggest Loser
Buick –28.2% at 13,234 (4/06: 19,971)
yea but this mawket is on fire! It only matters when it matters.
“Perhaps next month we will see the sales numbers tick up again, along with the stock market? That would seem to validate this correlation.”
The charts corelate almost tick for tick with sunspot activity. Would seem to validate this correlation.? I m not so sure. people are too quick sometimes to ascribe causes where no causes exist.
yea but this mawket is on fire! It only matters when it matters.
“Perhaps next month we will see the sales numbers tick up again, along with the stock market? That would seem to validate this correlation.”
The charts corelate almost tick for tick with sunspot activity. Would seem to validate this correlation.? I m not so sure. people are too quick sometimes to ascribe causes where no causes exist.
Some quick levity…
One of my buddies who also runs money is short a few names that are beating him up a bit. He brought back a call that we used to use when we were on the wrong side of a trade that just kept hurtin’ us. Hadn’t heard it in a few years…
“Make the bad man go away!”
I always loved that line and you can’t really feel the pain unless you run money for a living and your entire world revolves around your bottom line. You can barely breath and you can’t believe you’ve gotten yourself this wrong. I feel for him. If you haven’t been there, you haven’t traded long enough!
people are too quick sometimes to ascribe causes where no causes exist.
…and correlation, when it exists, is not causation.
I want my hybrid mini-van. Where is it?
Toyota sells it in Canada, why not here? Get us the products we want, and we’ll buy them.
Donna,
Toyota’s Canada’s website (toyota.ca) does not advertise offering a hybrid for their minivan.
To grasp the difference between what MEW means to “ordinary” consumers and what stock values contribute, these comments by Russ Winter of The Daily Reckoning are extremely telling:
Quote: “From 1998-2005, housing prices doubled nationwide and tripled (or more) in hotsy-totsy places like FL, CA, AZ, NV, etc. For the VAST majority of Americans, their home is the single largest financial asset they have and not by a small margin. At the recent peak, something like 70% of American households “owned” a home, while only 50% of households own any stock at all.
For the half of American households that own stock, the VAST majority own an extremely small amount dollar-wise compared with the “value” of their homes. The top 1% own about 33% of all stocks. The top 10% own nearly 80%. The bottom 80% own about 20%. And the bottom 50% own 0%.” End Quote.
Add to this that pension funds are an end buyer of the toxic waste mortgage bonds, you have the the makings of a fall that will be get down and dirty – which happens to rhyme with 1930.
History doesn’t repeat; but it rhymes.
Mark Twain.
A car is the worst investment anyone can ever make. Its value sharply drops immediately after purchase, and it is virtually worthless a decade after purchase. Add the high cost of insurance, maintenance and fuel, and it’s just a total loss. At least with a home you have the chance of increased value over time (except as of late!).
For being on a site called “The Big Picture,” I think a lot of people are missing the big picture! Much like houses, cars have been way over-produced for the last several years; and to make the problem worse (for car makers), cars are getting more reliable just as quickly (even for the brands that haven’t had a good rep in the past). The market is over saturated and buyers are wising up to the fact that a couple year old car with 50K miles has just as many gadgets and is just as reliable (if not more reliable) than a car with no miles. Why pay twice as much if you’re only going to keep it for a few years anyway? Unless you want a hybrid, a SUV with factory-bling wheels, or a luxury car with the latest gadgets (all combined a very small portion of the total market), you might as well buy used. The housing ATM running dry has snapped the population back to reality, and I think people are being less rash with their decisions on big ticket items like cars; they’re starting to realize that there are better options out there than buying a new terrible investment. So to me, it’s no surprise that car sales are off. I’ve been anticipating it for a while.
I don’t buy the gas argument, even at $10/gallon, a two year old non-hybrid is a better economic decision that an equivalent shiny new hybrid; plus you pay for gas as you go, rather than get yourself in debt hoping it will pay you back at the pump. Keep in mind that the hybrid is just the new SUV; it’s what upper-middles buy to impress their friends, which has little to do with the actual function of the vehicle.
You can try not to blame US car makers for the crap they build but it is a big part of it. GM took 10 years to clean up the problem of faulty head gaskets not being compatable with the orange anti freeze. Transmission problems have been legendary at both Ford and Chrysler and most people know it. Do the homework and then tell me that the US big three don’t deserve what they got.