Economic Jitters Could Negate Strong Initial August Sales

Economic Jitters Could Negate Strong Initial August Sales

By Bill Visnic August 24, 2010

Although U.S. auto sales started August at a robust pace, a diving U.S. stock market, a big drop in home sales, continuing discussion of deflation afflicting the U.S. and a surging value of the Japanese yen all are contributing to broad economic discomfort that could begin to impact the auto industry's wobbly recovery.

The exchange rate between Japan's yen and the dollar fell through a 15-year low on Tuesday, with the yen at 84.13 to the dollar, as Japan's leadership searches for options short of outright currency manipulation. Japanese automakers already are feeling the pinch and a sustained period with the yen at this strength level surely will begin to affect strategies for exporting of vehicles to the U.S. market, likely tightening supplies and reducing inventories.

The president of the Tokyo Stock Exchange told reporters on Tuesday Japan's government needs to intercede to address worries about the growing strength of the yen.

Meanwhile, a key United Kingdom banking official signaled in a newspaper article that the country could slip back into recession.

All this led to a U.S. stock market slide at the start of the day that was threatening early on Tuesday to take the Dow Jones Industrial Average below 10,000 - a place that, except for brief periods in June and July, it hasn't been since early February. Given the worries about the economies of other regions, another Dow dip below 10,000 likely would give rise to new speculation about a double-dip recession in the U.S.

Auto sales started strong in August at a Seasonally Adjusted Annual Rate of approximately 11.8 million units, but continuing bad news about the national and global economies, as well as the stock market's jitters, may begin to affect buyer confidence - now and throughout the lean months of the fall and winter, particularly if automakers begin to retract some of the more attractive incentive programs that seemed to be generating showroom traffic in the first part of August.

 

 

Bill Visnic:  is an AutoObserver Senior Editor. Follow @AutoObserver on Twitter