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Wishing for a speedy recovery in car sales
January 14, 2008
The pivotal question at the Detroit motor show is just how badly the industry is going to suffer from the US economic downturn or recession.
Most industry analysts are getting gloomier about the prospects. Sales in 2007 came in at a shade over 16m, which was well below the 17m peak of previous years. PricewaterhouseCoopers, the consultants, has predicted predicts sales of 15.6m this year and 15.2m in 2009 if there is a recession.
Today, I came across an optimist: Bob Carter, the head of Toyota’s US marketing and sales organisation. He thinks sales will recover in the second half of this year to reach 16m again. Somehow, I cannot quite believe things will turn out as he hopes.
Sales of pick-up trucks, which are the biggest segment of the US market - some 2m of the 16m annual sales - are suffering from the housing downturn. A lot of pick-ups are bought by small business owners, not only ranchers and farmers but plumbers, electricians etc and the housing slump means they have fewer new buildings to work on.
Then there is a broader economic climate, which is making people more cautious about buying cars or taking on new credit. Nor can they cannot tap the equity in their home so easily to buy a vehicle.
Mr Carter says he thinks sales will be volatile in the first half of the year but should recover in the second half. He cites US employment and consumer spending figures, along with interest rate cuts, as factors that will stimulate sales.
Well, good luck with that. Other companies are more pessimistic, especially given the weakness in auto sales in January. Rick Wagoner, GM’s chief executive, was drawn to muse yesterday about whether the long-term trend in US auto sales is lower than the 17m the industry cites.
Mr Carter made two other points that interested me. One was that weakness in auto sales has been a regional affair. The weakest sales have been in states affected most by the housing downturn - what one might call the Sunbelt ex-Texas. Things are particularly weak in states such as California, Arizona and Florida, while dealers in the Midwest and the east coast have been doing better.
His second point was that Toyota generally sells its cars and trucks to people with solid credit ratings and does not rely much on discounting to shift metal. If so, Toyota will not be as badly exposed as some rivals to the sub-prime credit crisis.
Still, if one takes Ford in particular at its word, it will respond to any economic downturn not by stepping up incentives and discounts but by cutting production further. GM is also expected to unveil more blue-collar buyouts soon to reduce its workforce. None of that sounds like it will lead to higher sales.
