Car Sales Up, Momentarily, in a Lousy Economy

Car sales

Sales of new vehicles—except in Japan, which continues to take a big hit—are up this year, while GM today reported a $2.5 billion second-quarter profit, a half-billion above analysts’ expectations. Yet it warned second-half earnings would be weaker.

At the same time, stocks in Europe and the U.S. are getting battered, oil prices are dropping, and it’s all owing to big fears about the economy, concern for unemployment, a falling dollar, and too much debt everywhere. China is starting to worry about its enormous investment in the U.S.

So, a lot of folks are holding off on buying a new car at this point. As our DealFinder will tell you, used car sales are still booming, but the really wealthy are buying gold and Swiss francs instead.

Except for Toyota and Honda, which each reported “large declines,” GM showed modest July sales gains, as did Ford and Nissan. Chrysler was up over 20 percent, but the industry as a whole seems skittish for several reasons.

First are the economic fears we mentioned, plus the endemic lack of confidence in Washington. Second, Ford and GM are producing too many trucks, which aren’t selling, and not enough of their small, fuel-efficient cars, which are. Third, Toyota and Honda are giving big discounts and incentives, averaging nearly $2,000 per vehicle, to try and build back their market share.

Volt productionSo, despite some current sales gains, the outlook is not bright. While analysts are still predicting sales of around 13 million units in 2011, I wouldn’t bet on it. Annualized light vehicle retail sales for July were only 9.8 million. The big reasons are that consumer spending has dropped dramatically, saving has increased, and wages remain stagnant.

Rebecca Lindland, a respected auto industry analyst at IHS, has a corroborating video here.

All are signs of an economy in debt and decline, whose prospects for improvement are undefined and without direction. Except for autos, Mr. Obama has failed to take the lead on all his major proposals, from health care on, while punting the ball to Congress. The result has been virtual anarchy and the concessions we have seen.

Consumer confidence is not only low but befuddled. The big question in such an environment is how are we going to get people back to work so that they can afford to buy new cars (and other things) again?

Do you think the auto industry will be able to continue (or resume) its progress?

—jgoods

Find Used Cars in Your Area at CarGurus

3 Comments

  1. That’s 90% of the workworce, which is 100% less the just under 10% unemployment rate. The workforce, of course, includes only those who whish to be employed.

  2. @ Randy
    Well, I’m not going to argue with you about GM again, but where did you get that incredible “90% of people are still employed” figure? From everything I read, it’s actually around 58% (see, for example, http://www.nytimes.com/2011/08/05/opinion/the-wrong-worries.html?_r=1&hp), and I put no faith in BLS statistics. Dealing with unemployment will be the key to restarting growth in this economy. Until that happens and the recession works its way out, I think you’ll see demand for new cars continue to decline.

  3. Well, 90% of people are still employed, and car demand can only drop to record low levels for so long, especially given the very high prices of used vehicles. I think what’s helped has been more availability of resonably priced leases. Given the debt crisis (which really isn’t resolved yet), today’s stock market decline, and the decline in bond prices, we may be heading for a double dip recession. One thing, though, don’t be fooled by profit reports from GM. If you had very high debts and could get rid of all of them, keep your income and get a huge loan that you didn’t need and could bank (and collect interest) would you be doing OK? Always keep in mind that GM’s “good news” was bad news for tens of thousands of investors, employees, suppliers and taxpayers.

Leave a Reply

Your email address will not be published. Required fields are marked *

*
*
Website