U.S. auto sales plummet: everyone down over 30%
The numbers for December are in and they are grim. 2008 was a year to forget in the auto industry. Sales plummeted around the globe as recession took hold. In the United States, every major car company saw sales fall at least 30% compared to 2007.
In truth, the global auto industry has been working in a situation of overcapacity for some time (much as the airline and financial services sectors have). However, the industry was propped up artificially by unsustainable excess demand that was a direct result of low interest rates (think zero percent financing). Now that this excess demand has evaporated, the auto industry is in dire straits. Expect the trend to continue into 2009. The auto industry desperately needs to consolidate if it expects to return to profitability anytime soon.
General Motors Corp.’s U.S. sales plunged to a 49-year low in 2008, dragged down by a 31 percent slide in December as demand was ravaged by the recession and concern that the biggest domestic automaker might collapse.
Toyota Motor Corp.’s U.S. deliveries plummeted 37 percent last month, while Honda Motor Co. slipped 35 percent, Ford Motor Co. fell 32 percent and Nissan Motor Co. was down 31 percent, pointing toward the industry’s worst annual volume since 1992. Chrysler LLC dived 53 percent.
The federal rescue of GM and Chrysler couldn’t overcome buyer pessimism and tight credit in the world’s biggest auto market. Ford’s 2008 U.S. sales sagged to a 47-year low, while GM’s total of 2.95 million light vehicles was the least since 1959, according to trade publication Automotive News.
“It’s one of the worst years ever, and this year will be worse,” said Stephanie Brinley, an analyst at consulting firm AutoPacific Inc. in Southfield, Michigan. “It’s not a gas problem. It’s not a credit problem. It’s a consumer confidence problem, and it’s worldwide.”
GM and Chrysler received commitments last month for as much as $17.4 billion in U.S. loans, saying they would have run short of operating cash by this month.
Oh, I forgot, there was a massive bailout. And GMAC, the auto finance company owned by Cerberus Capital and partially owned by General Motors, received $6 billion too. Now, we can go back to zero percent financing for subprime borrowers because this is not a credit problem, it’s a consumer confidence problem.
Sources
GM’s 2008 U.S. Sales Dive to 49-Year Low on Recession – Bloomberg
Porsche to Boost Holding in Volkswagen to More Than 50 Percent – Bloomberg
The concept of access demand and overheated economies seems to go against classical theories of international trade. In a more classical view countries should produce on their production possibility frontier boundary and it seems to be that these credit cycles clearly show the weakness of some economic models which are taught to university students.
Sure the car industry is relatively inefficient and needs to shrink relative to other industries. But had their been sufficient money supply then their would be sufficient demand to buy those vehicles.