By JEWEL GOPWANI • FREE PRESS BUSINESS WRITER • January 5, 2009
Despite dire auto sales predictions for 2009 — some analysts are forecasting the worst year in more than two decades — there are glimmers of hope that the market might begin stabilizing after a tough first half
Automotive analysts expect consumers, who are still wary over the shaky state of the economy, to buy between 10 million and 12.4 million new cars and trucks in 2009.
That’s down substantially from the 16.7 million in annual sales the industry has averaged over the past decade. And it’s even lower than the dismal 13 million or so in sales expected for 2008.
But there are bright spots on the horizon.
More than $23 billion in federal assistance is now on its way to General Motors Corp., its lending arm, GMAC, and Chrysler LLC. The money for GMAC, in particular, could begin thawing the credit market, which has been rejecting auto loans in droves. And that could help loosen consumer demand for cars and trucks, which has been pent up for months by the lack of credit and general caution over the economy.
“The first half is going to be quite a struggle, with some improvement in activity starting around spring,” said Jesse Toprak, senior analyst at Edmunds.com. “The things that need to be done to jumpstart demand in the marketplace are happening little by little.”
December freeze
Despite that, most analysts still expect auto sales in 2009 to be almost as bad, or worse, than in 2008.
For 2008, analysts predict that light-vehicle sales will drop to between 13 million to 13.2 million, which would be a decline of at least 18% compared with 2007 and mark the worst sales year since 1992.
Automakers are expected to release their sales for December and 2008 on Monday.
Industry-wide auto sales are expected to be down about 40% in December compared with the same month a year earlier, according to predictions from several automotive analysts.
Analysts expect Chrysler to lead the decline with a drop of about 45% to 50% in sales. GM’s sales likely will decline by about 35% to 40% in December, based on a range of analyst estimates.
Analysts credit both drops not only to weak demand but to the prospect of both companies filing for bankruptcy protection. The auto companies have repeatedly warned that consumers would not want to buy vehicles from a bankrupt company for fear of not having their warranties honored.
“GM and Chrysler should still show the effects of consumer’s balking at buying their vehicles based on bankruptcy fears, though the effect should be diminished relative to prior months,” Chris Ceraso, auto analyst at Credit Suisse, wrote in a note to investors this week.
Ford’s sales are expected to drop by about 33%.
Cars beat trucks in 2008
Last year is expected to mark the first time in seven years that passenger car sales surpassed light-truck sales, said George Pipas, Ford’s U.S. sales analyst.
The shift reflects a rise in gas prices, the first of several waves of volatility that hit the industry this year, leading to a steep sales decline throughout 2008.
The industry’s collapse started in May, when gas prices topped $3.50 a gallon and the housing market, already in crisis, began to worsen.
In the fall, the credit crisis became acute as the nation’s financial institutions required a $700-billion federal bailout. Car and truck buyers were left without lenders to supply credit. The economy continued to deteriorate, with the nation’s unemployment rate reaching a 15-year high in November and consumer confidence reaching an all-time low in December.
Even Japanese automakers, whose sales increases continued even as gas prices spiked, saw severe sales declines toward the end of the year.
“It’s been a really challenging year to say the least,” said Pipas, who expects light-vehicle sales in 2008 to come in at about 13.2 million.
Despite that, truck sales, which tend to be important profit indicators for Detroit’s automakers, are thought to have ticked upward in December, compared with November levels.
Part of that is seasonal. Pickups and SUVs usually sell better as winter sets in. In recent months, however, they also have benefited from a drop in gas prices and near-record incentives that automakers offered on those vehicles, Toprak said.
More of the same
Pipas and most other automotive analysts believe that the beginning of the new year will be just as difficult as 2008.
“The first quarter is still going to be pretty rough. A lot of people are losing their jobs right now,” said Erich Merkle, lead auto analyst at Grand Rapids consulting firm Crowe Horwath. “But there are people who are still working that are going to hold on to their jobs that aren’t buying a new car either.”
Automakers have maintained a conservative and pessimistic outlook for the first part of 2009, and most have announced plans to slash production through the first quarter.
Compared with 2008, GM is expected to cut production by half during the first three months of 2009, according to Credit Suisse. Ford is expected to cut production by 42% during that same period.
Those production cuts could help automakers gain some pricing power if consumers who’ve been holding back on vehicle purchases begin shopping again.
Toprak expects lower inventories to allow automakers to raise prices in 2009, starting this spring.
“If you’re a consumer in the marketplace to buy a car, this is probably one of the best times to buy a car,” he said.
Contact JEWEL GOPWANI at 313-223-4550 or jgopwani@freepress.com.
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