December Auto Sales Still In The Dumpster. Luxury Brands Continue To Substantially Underperform.
Today the major auto makers announced sales results for December. The results across the board were obviously poor. I suspect we will be skating around a bottom for some time. In other words, approximately ten million units is a level of support in the economy from which we could see stabilization or a small improvement in numbers over the coming months.
It's interesting to note that Toyota's sales are now worse than those of the top American auto makers. While I have been consistently critical of American auto company management since starting this blog, it is erroneous to blame this auto crisis on poor management or the oft remarked statement that American car makers don't make what consumers want. While that is certainly true in certain market segments, as we have pointed out, the reality is GM and Ford do make some of what people want or they wouldn't be the two largest auto makers in the U.S. Additionally, GM is effectively tied with Toyota for number one in global sales and Ford is number two. The reality is at a run rate of ten million units, there is no major auto maker in the U.S. that does not face substantial economic distress or worse. Eventually, I would not be surprised to see global auto sales drop from a run rate of approximately 70 million units to around forty million units before this cycle ends. Today, global sales predictions are still way too high with most anticipating a drop of around ten percent. Auto sales have already dropped by 7 million units in the U.S. There is your ten percent. We see this same type of disconnect in futures earnings of S&P companies that are substantially too high.
Such distress in the auto markets could easily lead to the bottom 25-40% of global auto makers going out of business. Such a cleansing would assist with my consistent remarks over the last three years that I am long term bullish on U.S. auto makers regardless of whether they go through bankruptcy.
One very troublesome data point that continues to show erosion is something we have written about repeatedly for the past two years. Luxury and demi-luxury brands were putting in a major peak. As we have discussed, that is not just an auto maker statement. European auto makers have substantially more risk in this segment than any other auto makers. Mercedes, as an example, has reported sales in many of its luxury segments are down 50-60%. Of course, this also holds true with other luxury brands such as Lexus. But, Toyota or GM as an example, have much more ability to manage risk in this segment through the use of flexible manufacturing techniques. ie, Product substitution within their manufacturing base. Something many of the premiere European auto makers don't have the luxury of doing. No pun intended.
We can expect all of the major European luxury brands will likely receive more government assistance before this cycle ends.
It's interesting to note that Toyota's sales are now worse than those of the top American auto makers. While I have been consistently critical of American auto company management since starting this blog, it is erroneous to blame this auto crisis on poor management or the oft remarked statement that American car makers don't make what consumers want. While that is certainly true in certain market segments, as we have pointed out, the reality is GM and Ford do make some of what people want or they wouldn't be the two largest auto makers in the U.S. Additionally, GM is effectively tied with Toyota for number one in global sales and Ford is number two. The reality is at a run rate of ten million units, there is no major auto maker in the U.S. that does not face substantial economic distress or worse. Eventually, I would not be surprised to see global auto sales drop from a run rate of approximately 70 million units to around forty million units before this cycle ends. Today, global sales predictions are still way too high with most anticipating a drop of around ten percent. Auto sales have already dropped by 7 million units in the U.S. There is your ten percent. We see this same type of disconnect in futures earnings of S&P companies that are substantially too high.
Such distress in the auto markets could easily lead to the bottom 25-40% of global auto makers going out of business. Such a cleansing would assist with my consistent remarks over the last three years that I am long term bullish on U.S. auto makers regardless of whether they go through bankruptcy.
One very troublesome data point that continues to show erosion is something we have written about repeatedly for the past two years. Luxury and demi-luxury brands were putting in a major peak. As we have discussed, that is not just an auto maker statement. European auto makers have substantially more risk in this segment than any other auto makers. Mercedes, as an example, has reported sales in many of its luxury segments are down 50-60%. Of course, this also holds true with other luxury brands such as Lexus. But, Toyota or GM as an example, have much more ability to manage risk in this segment through the use of flexible manufacturing techniques. ie, Product substitution within their manufacturing base. Something many of the premiere European auto makers don't have the luxury of doing. No pun intended.
We can expect all of the major European luxury brands will likely receive more government assistance before this cycle ends.
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