Wednesday, January 6, 2010

The Much Touted Auto Sales Number - Much Ado About Nothing

December auto sales came in at a seasonally adjusted annualized rate (SAAR) of 11.2 million vehicles. Some analysts and the media have been touting this as a surge that is fuelling hopes of a recovery. Unfortunately it is not. Now the numbers sure look like a surge when one compares them microscopically with the post-cash for clunkers September 2009 SAAR of 9.2 million units. But consider this:
  1. Before the financial crash happened, car sales in America averaged around 16.8 million units annually (data from 2000-2007). If we compare the December 2009 annualized car sales number of 11.2 million, we see that car sales are down a whopping 33%. More interestingly to get back to 16.8 million units annually, car sales would have to grow by 50%. An impossible feat in the current economic environment.
  2. It took $3bn in government spending to boost car sales for 1 month in August to a SAAR of 14.1 million. When compared with this cash for clunkers fueled extravaganza, December sales are still down 20%.
  3. Now we would have called the December number a stabilization had it not been for the fact that the car makers themselves offered huge incentives. According to the WSJ, "The December surge appears to be aided in part by GM's late-month dealer incentive program to clear out thousands of leftover vehicles from Saturn and Pontiac. GM gave dealers $7,000 for every new Saturn or Pontiac on their lots that is moved to rental-vehicle or service-vehicle fleets operated by the dealers, from which they could be sold to customers at a discount".
  4. The numbers are even more sobering when one looks at replacement demand. According to Gluskin Sheff's chief economist David Rosenberg "12 million is the cutoff for replacement demand, which means that autos are currently being taken off the highways and driveways of America".
Readers can access our more detailed analysis where we present the reasons why there will be no V-shaped recovery in the U.S. car market here.

No comments: