Have Auto Sales Bottomed Out?

By Brendan Moore

09.04.2008

It has been a truly awful year for the auto industry as a whole, what with the price of gasoline spiking, CAFE pressures, a nationwide recession, the prices of raw materials going up, the housing collapse and the consumer and corporate credit crunch.

In July, auto sales year-to-date trended at 12.55 million units, a staggering drop from a normal year. However, in August, that annualized selling rate went up to 13.7 million units as August was a better month than July. Just for comparison’s sake, the annualized selling rate from August 2007 was 16.3 million units. It’s still a massive drop looked at from an annual basis, but on a consecutive-month basis, August results looks pretty good. Year-to-date, sales are at 9.8 million units sold.

This has some industry sales analysts saying that the sales slide may have reached the bottom. In particular, GM executives seem fairly upbeat, saying they believe the worst may be behind them. GM’s August sales were 20% lower than last year’s August sales, but August was a big improvement over the previous 60 days, that is, June and July results.

“We are encouraged by what we saw,” said Mark LaNeve, head of U.S. sales and marketing for GM. “At some point the market bottoms out. I’d like to think it was in June and July.”

LaNeve could be right, at least in regards to GM’s fortunes. Surprisingly, the Chevrolet Silverado, the company’s full-size pickup, was the No. 1 selling vehicle in August. It sold 55,765 units, which allowed it to vanquish the Toyota Camry from the top spot.

The best-selling vehicle in the U.S. last month

GM was helped by a sales promotion that offered employee pricing to all prospective buyers, as well as a drop in the retail price of gasoline. GM has since announced it is continuing the sales promotion.

It’s difficult to find the same sort of optimism anywhere else in the industry. There are many industry analysts that believe the rest of 2008 will just flat-line at the current rate, and 2009 will be the same or worse.

Even Nissan, whose sales were actually up in August, was not enthusiastic about the overall short-term sales forecast going forward. Ford, Honda, Toyota, Chrysler, etc. all see a very tough third and fourth quarter in 2008, with 2009 getting marginally better. They’re happy that the August numbers went up, but hardly ready to celebrate.

Has the industry turned the corner? Or is this merely a rest stop in some temporary shade for the auto companies?

My prediction is that the respite is temporary, and that this forced march will continue at least into third quarter 2009. I believe that the recent fall in gasoline prices will paradoxically serve to “freeze” many consumers in their vehicle-buying activity. For people who already have an SUV or pickup, there won’t be as much pressure to trade in whatever thirsty vehicle they may have because gas prices have fallen, and they figure they can live with it a while longer at these prices. However, for people who might want something large and new that drinks more gasoline than it should, the memory of $4 a gallon gasoline is still too fresh in their minds, and most of them are going to wait a little longer to see where the price of gasoline goes before committing to a long relationship with a heavy drinker.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. I don’t agree. I think we”l see some improvement in auto sales this quarter and fourth quarter, provided there are no political or military problems in the oil-producing countries.

  2. I wonder what the 4th quarter of ’08 will be like for auto sales. Home equity lines of credit have dried up for most homeowners, leasing is getting more restrictive, and higher credit scores are needed to get a good interest rate on an auto loan. Couple that with the pressure of holiday shopping, and I think a lot of auto sales people are going to have a lean Christmas..

  3. I believe that the only thing that helped auto sales in August was GM’s fire sale. Good for buyers, bad for GM – particularly in the latter part of the year when the pulled-ahead sales in August and September aren’t happening in the latter part of the year.

  4. I think 2009 is going to be worse than 2008. I think the only thing that will get sold in any numbers are small economy cars and a smattering of family sedans and crossovers. I think the econmy is going to get worse in 2009.

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