05 January, 2009

Bad News Bears economy continues to crush Automakers

Customer pessimism continues unabated in the United States leaving big ticket item sales near lows not seen in half a century.  For Automakers, this combined with the lack of credit for leases, means car sales are still plummeting. Detroit's problems have been well documented of late but even Japan's best saw US sales slump dramatically in December.

General Motors (GM) sales were down 31% in the last month of 2008, which pegged US sales over the year at a 49 year low. The American recession and consumer unsettling fears were the main culprits of blame, however with the company needed Federal bailout funds, it can't be stated that all is right with the biggest name in Michigan.

Ford (F) sales were almost a mirror image of its American brethren, down 32% in December, which netted total sales volume at a 47 year low.  Chrysler for all intensive purposes fared even worse according to analysts, who estimated 48% declines in December for the privately held American Automotive firm.

The United States car sales picture wasn't just bleak for domestic brands. Japan's best, Toyota (TM) and Honda (HMC) suffered sales drops 37% and 35% respectively in December.  At this point in the American economic cycle the consumer isn't discriminating, he's simply not setting foot into any dealership.  

This sales slump has taken a substantial bite out of the market capitalization of all automakers. 
GM, despite today's +4% day, sits down 58% over 3 months. Market Cap: $2.3Billion
F, up almost 5% today, down 36% over 3 months. Market Cap: $6.1Billion
TM, down 16% over 3 months. Market Cap: $103Billion
HMC, down 20% over 3 months. Market Cap: $38.7Billion

Despite the fact that the Japanese car companies have market caps that dwarf their American counterparts the sales slumps pose a potential opportunity. Amazingly, I think this bodes well for the American automakers, assuming of course all 3 get enough aid to keep afloat into any economic recovery.  The sentiment remains that Japan's best cars are still far more attractive to consumers on value for money and fuel economy but with car sales slumping across the board, it gives the struggling domestic makers more time to design, build and market attractive products in their local markets. Those consumers who today and tomorrow will not be buying the latest Honda Accord or Toyota Camry could potentially be swayed in 6 months time by a flashy, small, affordable and efficient Ford of Chevy vehicle.

All this still leaves one big if, can these companies build that attractive vehicle and turn around market sentiment? Recent history has shown the answer to be an emphatic no.  But, with recent government lifelines, the hope exists for a Detroit resurgence in 2009 and beyond.

Disclosure: Author holds no position in above mentioned companies

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