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Tuesday, November 25, 2008

November and December could prove to be the cruelest months for auto industry

Nov 25 2008 4:36PM | Permalink |Comments (8) |

Speaking of the auto industry, Egil Juliussen, principal automotive research analyst at iSuppli, put together a chart to compare the current economic debacle and its projected impact on the auto industry with past recessions.

In summary, the debacle of 2008 is pretty bad.

A telling statistic is that cars sold per thousand in the US is way down: 43.8 in 2008 (projected) compared to 54.1 in the 1974 recession and 50.4 in 1980.


Current Recession:	2007	2008	2009	2010	2011
Auto Sales (Millions)	16.16	13.3	12.71	13.05	13.54
Yearly Change (%)	-2.4	-17.7	-4.4	2.7	3.8
Auto Sales per 1k People (#)	53.6	43.8	41.5	42.2	43.4

1974 Recession:	1973	1974	1975	1976	1977
Auto Sales (Millions)	14.57	11.54	11.1	13.29	14.86
Yearly Change (%)	7.4	-20.8	-3.8	19.7	11.8
Auto Sales per 1k People (#)	68.9	54.1	51.5	61.1	67.6

1980 Recession:	1979	1980	1981	1982	1983
Auto Sales (Millions)	14.15	11.44	10.78	10.54	12.31
Yearly Change (%)	-8.2	-19.1	-5.8	-2.2	16.8
Auto Sales per 1k People (#)	63	50.4	47	45.6	52.7

Juliussen points out that these projected auto sales are suspect, because nobody can say how the credit crunch will play out and what its impact will be on sales. History may (or may not) give us some guidance. He says "The per capita figures show that the current sales levels are lower than in the previous recessions. To find lower per-capita auto sales, go back to 1961, when only 37.6 autos were sold per 1,000 people. Looking at October 2008 auto sales per capita, it was the lowest of any month since World War II, according to General Motors."

What about a government bailout? Juliussen says it's unlikely Congress will grant the loans this year, but the Obama administration may be more receptive to loaning money to the Big 3. How would having to wait until 2009 affect US automakers?

"Based on the testimonies, it sounded like both General Motors and Chrysler will run out of operating cash within months or even weeks depending on auto sales. In the worst case, General Motors and Chrysler would be forced to file for bankruptcy before the Obama administration takes over on January 20, 2009. Ford is expected to have enough cash to last longer."

So, November and December auto sales will be a crucial indicator of whether General Motors and Chrysler need to file for bankruptcy.

Juliussen says General Motors sales declined by 45 percent in October and Chrysler decreased by 35 percent, while the overall decline was 32 percent. He's forecasting an average decline of 35 percent for auto sales for November and December compared to the same period in 2007 to reach the current 2008 auto sales mark of 13.3 million.

Related entries in: Components, Hardware, Interconnect |

Reader Comments

at 11/26/2008 12:34:14 PM, Meredith Poor said:
One thing to keep in mind is that a car lasts longer now than it did in the 1960s and 1980s. A car was worthless after 100,000 miles in the 1960''s, and considered to be at ''end of life'' after six years. There were still plenty of cars built in the early 1980''s that used carburators, i.e. pre-fuel injection and engine management electronics. By the late 1980''s a car might last 150,000 miles, these days it''s 200,000. Theoretically, a properly maintained Prius should last 30 years or 500,000 miles. This is based on the idea of how much of the fuel energy is spent moving the car and how much is spent, in comparison, in vibration, heat, or incomplete combustion.

at 11/26/2008 6:33:48 PM, Bluebear said:
I think the problem is more deep rooted. US auto industry has long been sickened by poorer operational efficiency and inferior product quality, added the worse fuel economy during the time when crude oil price skyrocketed, then the credit crunch, and now depressed consumer sentiment. US auto industry has no choice but to follow other US industries such as consumer electronics, clothes, shoes, toys… to migrate oversea. Unless Obama and the Congress could truly be free to act for the immediate welfare of the middle class to maintain the present US social class wealth separation structure by reinstituting ugly protectionism or, more unlikely, by outmaneuvering other competitive policy makers such as the Chinese government, bailout money for US auto industry would be against the forces of the present establishment of global market politics. Unless the rules of the global market are revised, the US no longer holds a competitive strength producing automobiles.

at 11/28/2008 5:46:30 AM, Meredith Poor said:
One thing Americans forget about car manufacturing is that "foreign" car companies, including Toyota, Mercedes, Honda, and BMW all have plants in North America. This is not incidental: the US has a flexible workforce and an infrastructure appropriate for assembling myraid parts from thousands of suppliers on short notice. The population of Japan and Germany are both aging due to low birthrates, and the militant unions in Germany are matched by an increasingly passive workforce in Japan. ~~~ The other countries appropriate for making cars are Mexico and Brazil, which are both subject to corrupt officials, restive labor, and sometimes arbitrary government mandates.

at 12/1/2008 3:48:38 PM, Tamza said:
We need a central authority to limit the access of large vehicles to the inner urban areas, and make REALLY small cars that are not much more than covered motorcycles.

at 12/1/2008 5:23:37 PM, Niko said:
I do not know the industry but doubt very much "analyst" views. Where were these folks to warn everyone some months ago? Actually it is not them. It is the system that is based on shallow statistics "me too" reporting. Take example of above data. If you take the % change you might see that decline 2008 vs 2007 is less than 1980 vs 1979. Does anybody know what was the level of car ownership per head/family now and then? Does it matter? What is the level of infrastructure use and development (subway/metro per capita or similar)? Again, we have to stop see things short, very short term. Quick returns are nice but not if everyone is after them. There are some tools to try assess real economic value, to project viability and sustainability ... nobody wants these as they are not letting one pocket now. Unless performance measurement system is upgraded we are doomed to rest on semi-analysis or recommendations .... don't we all want to live in a bit more objective and panic-less driven world?

at 12/2/2008 9:20:52 AM, Hardtruth said:
Would the world miss GM or Chrysler if they went to the wall? Would competition be stifled by their failure?

Very tough on the folk directly affected but a government bailout would be to save the jobs only. These companies are not leaders in any area of automotive development and contribute little to the betterment of the sector. Probably why they are where they are.

at 12/2/2008 10:11:05 AM, Al F said:
I''m tired of hearing all the disparaging comments about the US auto industry. Quality is now on par w/foreign suppiers, and GM has done a great job recently revamping the vehicles across their brands - especially Cadillac, Chevy & Saturn.
Please realize the governments of Japan, Germany and China all play a vital role in partnering with their domestic auto industries - it''s time for the US govt to do the same.

at 12/2/2008 12:35:55 PM, DL said:
I question that quality remark just posted and for sure my Honda doesn''t depreciate anywhere near a US car does when I drive it off the lot. Ho-hum GM.

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