Auto Sales: Grounds for Optimism
Car sales are in the tank, but I’m optimistic, much more so than I am for housing. First, here’s the recent bad news on automobile sales:
This is your basic falling-off-a-cliff chart. What’s the reason for optimism? Take a look at the long-run history:
I normalized car sales for population to compare past decades with recent experience. Observe that this is a cyclical variable. Yep, it sometimes goes down hard. Then it recovers.
Next observe that we HAVE NOT BEEN OVER-BUYING cars like we did houses. That last spike was in 2000, just before the 2001 recession. In the housing boom years, car sales were pretty stable. (This series shows units sold; the dollars spent is a bit stronger in 2005, as we shifted to more expensive cars/trucks/SUVs.)
The auto sales turnaround will not come next month, because there’s too much doom and gloom among consumers, some job losses, and difficulty for marginal borrowers to get car loans. But the longer we spend below trend, the more upward pressure there will be on car sales when the economy shows a little bit of strength.
So is this a good time to buy GM? I have to say, if it was truly worth $30 a share back in 2007, it looks like a great bargain at $10 today. But here’s the rub: I’m not sure it was worth $30 last year. Maybe it was, but I would want to sharpen my pencil on their employee liabilities and their competitive position before buying the stock. I must say (here’s a non-expert comment) that they have some good looking cars for a change. If I weren’t such a practical, reliability focused buyer I would abandon the Japanese nameplates for a GM or a Chrysler.
Comments
Yes, I share your instinctive response. I have always hated GM cars. Now, all of a sudden, they are making more interesting vehicles, yet teetering on the brink of bankruptcy. I would like to see GM do better, and continue to follow some of the new thinking. Maybe Chinese sales might keep the company swimming??? (Haven’t analyzed any numbers on that idea, though.)
Forgot to add – can you plot that graph over the price of oil as a comparison chart, or even calculate an inverse correlation? Or… could higher oil prices even spark sales by driving a move to economy – and softening the price of big machines??? It would be interesting to see what the charts actually tell us.
And now, given the economic crisis the drop in sales all seems to make perfect sense!
This is nice illustration of the automobile sales, I agree with Holden that the decrease in sales can be attributed to the oil price hike.