Buckle Up, Industry Recovery Is Going to Be Bumpy
July 27, 2010

By Bill Visnic

When June figures showed total industry vehicle sales dropped 10 percent from May and were up just 14 percent compared with a feeble June of last year, it became more or less official: the auto sector recovery - you know, the one that was supposed to be well underway by now - isn't too well underway at all.

Analysis of first-half 2010 sales shows the industry isn't without winners and positive trends, but a sustainable upward sales trajectory now seems clearly stalled by a horde of indicators raising concerns about the fragile national economic recovery and the possibility of the dreaded double-dip recession.

Taking in all that, industry executives might not sound exactly desperate yet, but many are subtly acknowledging the inability to vault much beyond a low-11-million Seasonally Adjusted Annualized Rate (SAAR) is increasingly troubling.

"I don't know if I would call it toothless recovery, per se, probably more shaky," said Edmunds.com senior economist Rebecca Braeu.

Braeu noted that the nation's retail sales were strong in the first quarter, but now are slowing.

The question on everybody's mind is whether - and when - consumers will feel good about buying again.

A Recovery - Kinda

Trouble - still - for the car business? This was expected to be so "yesterday's news."

After all, General Motors Co. and Chrysler Group LLC came out of bankruptcy with no apparent irreversible effects on public perception. For the domestic automakers, in particular, excess has been capacity deleted. Inventories are being managed like they haven't been in decades. All makers are redoubling efforts to get desirable, more-environmentally responsible new-age products on the road and more are on the horizon.

For the perpetually troubled domestics, the painful trials of the past two years supposedly have transported them past the "profitless prosperity" in markets of nearly 17 million sales to the prospect of decent earnings at industry volumes close to today's depressed levels.

But what if the current sales level represents a new norm that takes years, rather than months, to substantially improve upon?

Already, automakers are giving signals today's sales volumes aren't really able to sustain them: in the first half, what rebound that did occur, at least for the domestics, was borne substantially by outsized fleet sales and a July return to large-scale 0-percent financing programs raises the red flags of renewed incentive wars. The potential for a worse problem - price-eroding deflation at the macroeconomic level - also looms, if still deemed unlikely by most economists.

First-Half Signals

 For the first six months of 2010, the auto industry, battling itself and the economy's strengthening headwinds, was like a football team that didn't perform particularly well in the first half but isn't out of the game - yet isn't exactly confident of winning, either. Maybe the most telling of the game's actual score: factor out fleet transactions and the retail sales volume for the first half of 2010 was effectively equal to total sales for the epically awful first half of 2009.

Acknowledging that the buoyant perspective the industry held coming into the year is fading, Hyundai Motor America president and CEO John Krafcik announced the company was slicing its full-year forecast to 11.3 million, roughly a half-million units shy of earlier consensus. Releasing sales totals for June and the first half, executives for several other major automakers also evinced disappointment and expectation of a slower than formerly-projected recovery.

Performance by Make

Viewed through that cautionary prism, analysts for Edmunds.com analyzed first-half sales from a number of perspectives, with intriguing and sometimes surprising results.

First, of all the 29 makes that improved performance for the first half compared with the first half of 2009, all of GM's remaining four brands - Buick, Cadillac, Chevrolet and GMC - were in the top 10 performers. Buick was the best-performing make in the first half, improving sales by 48.4 percent compared with like-2009; Cadillac was third (+34 percent) and Chevrolet was fifth (+31.6 percent). The top 10 all increased sales by at least 25.3 percent, some of which came from unsustainable levels of fleet sales.

More illuminating, however, is how the performance compares to 2008, a more "normal" year, despite the fact the recession accelerated in the late months of the year. Of the same top 10, only Subaru, Audi and Volkswagen sold more vehicles in the first half of 2010 compared with the first half of 2008.

Only six of the 37 makes tracked by Edmunds.com increased sales for the first half when compared with like-2008 - and total industry sales for the first half of this year trailed 2008's first half by more than 1.7 million units.

In the first half, eight brands trailed even their 2009 sales numbers and four were GM's castoffs: Hummer, Pontiac, Saab and Saturn. The other brands to lose sales in the first half compared with 2009 were Jaguar, Scion, Suzuki and Smart.

Source: Edmunds.com

Big 7 A Bust

The Big 7 automakers - Chrysler, Ford, GM, Honda, Hyundai (with Kia), Nissan and Toyota - collectively improved their total first-half sales by 17 percent compared with 2009. But to again demonstrate the weakness of that comparison, the Big 7 trailed their like-2008 total by 24 percent and more than 1.6 million units.

Of the Big 7 makes, only Hyundai boosted sales when compared with 2008's first half, improving by 10 percent and nearly 75,000 units. Ford first-half sales were off 14 percent compared with 2008, GM was down 32 percent, Chrysler is off 39 percent, Honda had a 25-percent deficit, Nissan was down 16 percent and Toyota was off 32 percent.

Downsizing: Slim Trend

Automakers had better hope there is profit in their new generations of smaller vehicles, because buyers do appear to be following the predicted downsizing trend.

In the first half, large cars and large trucks have ceded market share, albeit small portions,  compared with the first half last year, while compact cars held steady and compact SUVs gained. The largest drop in share compared with 2009 was for luxury cars, which lost a half-point of market share; the biggest first-half gain compared with last year was 0.6 percent of share increase for midsize SUVs.

Showing a downsizing trend is far from absolute, however, subcompact cars, after jumping in 2008 and gaining slightly again in 2009, actually receded in the first half of this year, likely the result of continuing low gasoline prices and tight credit.

And to take a slightly wider snapshot, compared with the first half of 2008, compact-car market share declined 1.2 percent (offset by a 1.2-percent gain for compact SUVs) and large SUVs gained 0.4 percent of share in the same comparison.

Midsize cars controlled the largest market share in the first half this year, at 17.7 percent and have gained almost a half point of share compared with last year and nearly a full point of share compared with the first half of 2008.

And what about luxury? It's holding its own: luxury cars had 6.3 percent of the market in the first half, down from 6.9 percent for the same period last year but holding steady compared to the 6.5 percent of share in the first half of 2008. Luxury SUVs gained share compared with last year, from 3.9 percent of the market to 4.3 percent for the first half of 2010.

The data from Edmunds.com indicate segments losing share steadily since 2008 are compact trucks, large cars, minivans and vans. Gaining share for the first half in each of the past two years were compact SUVs, luxury SUVs, midsize cars and sports cars.

  Second-Half Outlook

Sales in early July were running at a rate of close to 12 million SAAR, according to Edmunds.com's analysis of transaction data. However, that level of sales activity is not expected to continue, and sales may slow through September, October and November. Edmunds.com has been forecasting an 11.3 million year, at best. 

Bill Visnic is senior editor of Edmunds' AutoObserver.com.

Edmunds.com analysts Ivan Drury and Jeremy Acevedo provided the vehicle sales analysis and charts for this post.

Edmunds.com senior economist Rebecca Brau provided the macroeconomic outlook for this report.

 

 

 

Posted by Michelle Krebs at 8:38 AM under Analysis , Companies , Featured | Comments (1) | digg this | Seed Newsvine

Technorati Tags: 2010carsales, automotivefleetsales, automotiveincentives, doublediprecession, zeropercentfinancing