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Even Goldman Expects Post Cash For Clunkers Hangover
Goldman Sachs, which disagrees with Edmunds' expectation for an 8.8 million September SAAR, has shared its own projection of 9.3 million. Even so, the drop from the 12.5 million in September 2008 and the 14.1 million in August, is dramatic. What is scary is that there is no indication October will be any better. The only new initiative launched by Detroit: 60 day money back guarantees. Will that stimulate car sales, or simply end up as a bureaucratic nightmare for dealers, is still unknown. Although rental companies, those Chinese rockets like Hertz and Avis whose stocks have gone up by about 10,000%, will very likely not be too happy that GM has now also entered the "rental" car business.
September’s US light vehicle sales will be reported on Thursday, October 1. We expect a seasonally adjusted annual selling rate (SAAR) of 9.3 million units in September—well below the 12.5 million reported in September 2008 and below the 14.1 million reported in August 2009. The expected big decline in September’s sales will be driven mainly by the hangover effect associated with the Cash-for-Clunkers program (C4C), which ended on August 24. Very low inventories also probably contributed to the decline. According to Ward’s, total US inventories were only 29 days as of August 31, well below the 65-day normal level. Numerous sources such as Edmunds, Automotive News, and Ward’s have also reported that consumer traffic at auto dealers plummeted when the C4C program ended. Ward’s expects the September 2009 SAAR to be 9.5 million, and Goldman Sachs Equity Research is expecting a SAAR of 9.3 million. For FY2009 and FY2010, we continue to forecast a 10.5 million and 11.7 million unit US light vehicle SAAR, respectively.
Yet even according to Brian Jacoby, nothing good awaits the Big 3 (or is that one and a half/three quarters? What kind of haircut do 363 Sales represent to pre-bankruptcy integers?)
We expect the D3 to report the following September sales: GM down 40% yoy, Ford down 7%, and Chrysler down 49%. Ward’s expects GM to be down 47.3%, Ford down 9.9%, and Chrysler down 49.1%. Our equity research team expects GM to be down 39%, Ford down 2%, and Chrysler down 45%.
The most relevant point discussed by Goldman is that the auto industry is once again restocking and absent a substantial pick up in demand (good luck if no CfC 2.0 is implemented), the inventory glut is poised to repeat itself as soon as H1 2010.
CSM is forecasting 2H2009 North American (NA) production of 5.09 million units, which is up 46.3% sequentially. The increase reflects the rebuilding of dealer stocks. For 3Q2009, CSM expects NA production to fall 20% yoy, but then rise 1% yoy in 4Q2009 (see Exhibits 1 and 2). Regarding Ford, we expect the company to produce 495,000 units (up 18% yoy) in 3Q2009 and 570,000 units (up 33% yoy) in 4Q2009.
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Bob Lutz indicated on Bloomberg that GM dealers weren't seeing much of an impact from the money back guarantee program but tried to spin that as expected. He quoted some statistic about how a bigger percentage of the public was willing to consider the purchase of a GM vehicle. He pretended the program wasn't really intended to have a short-term impact on volume, which is kind of strange given that it is supposed to run for only 60 days and is backed by television advertising.
In the most recent Automotive News, dealers report very poor traffic, as bad or worse than pre-CFC. Low inventories on the best selling models during CFC is part of the problem. I expect the inventory rebuild won't be as big or as long as expected. Given what looks to be a normalized SAAR of 10 million units or less and difficulties with financing inventories, dealers aren't going to rebuild to prior inventory levels. Part of the purpose of CFC was to clear excess dealer inventories.
you, should be more creative
i don't like this one bit. no sir no how. that clown scares me.
C4C will have a negative effect on the economy for about four years. Decimating foward demand is not a good idea IMO.
Also, consumers are now saying "Why buy a car this year, when next year Uncle Sam might hand us free money again"? Not a good idea agreed.
I wonder if any serious money manager still reads those fancy spreadsheet,after the game has been uncovered. I think all what money managers has to do is just place one simple question to GS:do you guys still have your life line to the fed open?. program the following in their computer:if answer=yes,then buy. if Answer=no,then sell. It is that simple.
Personally I think folks should just keeptheir paid-off vehicles and drive tehm into the ground. Then when something breaks, fix it and keep on keepin on!
That is what my wife and I are doing, driving our 98 Fords until something gives, then fixing it and moving on.
It is much cheaper in the long run than making monthly payments on a new car that you really cannot work on yourself.
Anyway I really do not think C4C was all that good a deal in the long run. Pulled forward demand that would have otherwise happened in 2010 or 11.
Now what are the BIG 3 gonna do?
what big 3?
Dealer participation in the GM 60-day program has been "beneath expectations." The owner of my local GM dealership is doing it, but feels it was ill-conceived -- solving a problem he said they didn't have. He wants them to decrease the price of their trucks by 20% -- "that would help us sell some vehicles and keep them sold."
fyi edmunds increased their sept estimate to 9.3 mm annlzd:
http://www.autoobserver.com/2009/09/september-car-sales-on-track-for-93-...
I have driven GM vehicles for decades - I WILL NOT buy another. The preferential treatment of unions over bond holders cured me of GM.
If I were in the market for a new vehicle, I would buy a used one...or if I decided on a new one, I would hold out until the next Gubermint Motors Program is announced. Who want to be the schmuck that buys an auto and doesn't get Gubermint Money for doing so?
John Mauldin points out in his recent news letter that U6 unemployment is probably around 16.8%, and cites Rosey's weekly hours worked number of 33 as an all time low...and that it will take the creation of jobs at a clip (250,000/mo for 5 years) we generally never get to get us back to unemployment numbers around the 5%.
Given the above, the car makers are probably in for a lengthy slump
GS is the worlds greatest counter indicator though.... and that's the idea.
Surprise, surprise. Another wave of the governmental magic wand failed to achieve the intended results.
I'm still waiting for my $10k double secret emergency do-or-die stimulus check in the mail.
I promise I will spend it on something frivolous, like that 100" 240 Hz LCD flat screen with picture in picture digital HD tuner.
Just send the check already. If you're going to stimulate, then stimulate. But of course, that's not what you're really trying to do, is it?
Not even sure where to post this. Sorry if it's already up.
Summary: Do I even need to say it?
AP – Senate Finance Committee member Sen. Charles Schumer, D-N.Y., gestures while delivering his opening remarks … Lisa Lerer, Victoria McGrane Lisa Lerer, Victoria Mcgrane – Mon Sep 28, 5:34 am ETWall Street has showered nearly $11 million on the Senate since the beginning of the year, and more than 15 percent of it has gone to a single senator: Democrat Chuck Schumer of New York.
Schumer’s $1.65 million take from the financial services industry is nearly twice that of any other senator's — and more than five times what the industry gave to any single Republican senator.
While the industry has scaled back its political spending in the wake of last year’s economic collapse, data from the Center for Responsive Politics show that it’s still investing heavily in the Senate, where it’s likely to have its best shot at stopping — or at least shaping — the crackdown on Wall Street that President Barack Obama has proposed.
And it’s clearly looking to Democrats to do it.
Of the $10.6 million the industry has given to sitting senators this year, more than $7.7 million has gone to Democrats. Schumer got his $1.65 million; his New York colleague Kirsten Gillibrand took in $886,000; Senate Majority Leader Harry Reid of Nevada received $814,000; Senate Banking Committee Chairman Chris Dodd of Connecticut scored $603,000; Colorado freshman Michael Bennet got $401,000; and Agriculture Committee Chairman Blanche Lincoln of Arkansas— who will have a big say on the derivatives portion of regulatory reform — got $336,000.
“Democrats are holding the reins in Washington now with a Democratic-run White House and Congress,” said one financial services lobbyist. “It only makes sense that donors want to put their money into the coffers of those who are driving the agenda.”
Among Republicans, the biggest recipient of financial-industry money so far this year is Richard Shelby of Alabama. But although he’s the ranking Republican on the Banking Committee — ground zero for the regulatory reform bill in the Senate — he’s received just $313,000 from the industry this year.
That’s smaller than the haul for Bennet, the most junior Democrat on the Committee, or Lincoln, who isn’t even on it. And Shelby is the only Republican senator on the industry’s top-10 giving list.
The industry’s giving pattern this year may upend the traditional notion of Republicans as the bagmen for Wall Street. But it also reflects political reality: Democrats hold a commanding if not quite filibuster-proof majority in the upper chamber, and some of them may be willing to side with the financial industry on key aspects of the regulatory reform effort — even if that’s not immediately obvious from the Democrats’ populist rhetoric.
The Financial Services Roundtable, an industry association that gave almost $425,000 to members during the past election, says the issues — not the party — drive its donations.
“We support members that understand the issues facing our industry,” said Scott Talbott, the Rountable’s senior vice president of government affairs. “This is done on a case-by-case basis.”
Democrats insist that industry money doesn’t influence their votes.
“Contributions don’t really affect — my basis of decision making is whether it’s going to be beneficial to Arkansans,” said Lincoln, who noted that financial services firms aren’t among her biggest contributors.
Schumer spokesman Brian Fallon says his boss “calls the shots the way he sees them” — regardless of who’s giving him money.
“The financial services industry is a vital part of New York’s economy, but he doesn’t hesitate to go after the institutions when they are wrong, such as with credit cards, corporate governance and overdraft fees,” Fallon said.
To compare the $1.7 million he’s gotten from the so-called FIRE lobby — that’s finance, insurance that’s not health insurance and real estate — with his positions on key elements of reform, you might think his donors are suffering from Stockholm syndrome.
Schumer, No. 3 in the Senate Democratic leadership and the former chairman of the Democratic Senatorial Campaign Committee, has offered scads of proposals that the industry doesn’t like on issues from corporate governance to derivatives to the creation of a new consumer watchdog for the financial world.
But his top donors include insurance company New York Life Insurance, private equity firm Lightyear Capital, futures clearinghouse MBF Clearing Corp. and real estate companies Rudin Management and Related Companies.
Quite a few financial insiders express frustration with Schumer, feeling he’s thrown the industry under the bus now that it’s politically popular to do so — after having collected mountains of cash from the industry to help the Democrats build their 60-vote majority in the Senate.
Others contend that, despite his positions on the hot-button debates surrounding the financial reform effort, Schumer remains an important ally for Wall Street on the technical issues that aren’t grabbing headlines, such as systemic risk regulation and capital requirements for financial institutions.
And on regulatory reform, much of what’s most important to financial firms exists in those more technical shadow lands.
“In the end, he still understands the operation of the marketplace,” explained one financial services executive.
Schumer is also a player on securities and exchange issues, an important area for the securities and investment firms that call New York home and that have given Schumer almost half of his industry checks this cycle — far more than any other member.
The hedge funds and private equity firms included in that giving also see him as something of a champion for them. Private equity, hedge funds, and venture capital firms gave him more than $707,100 during the 2010 cycle, nearly double what the industry has donated to any other member. Their support can be traced back to a 2007 battle over the “carried interest” bill that would have more than doubled the taxes paid by investment managers.
The legislation passed the House, but momentum petered out in the Senate — a victory some financial services lobbyists attribute to Schumer.
Schumer threatened to introduce legislation that would increase the taxes on carried interests for all industries, not just investment managers. His bill would have hit a litany of partnerships in industries far beyond private equity, such as real estate, oil and gas, and venture capitalists — a poison pill for most lawmakers. By spreading the pain, Schumer made it difficult for any lawmaker to vote for the bill.
In addition to collecting money from Wall Street for himself, Schumer has helped Gillibrand, the state’s junior senator, get her share of industry dollars.
Earlier this year, Schumer was instrumental in helping Gillibrand fend off possible 2010 challengers. In March, he co-hosted a $4,800-per-head fundraiser for her. And he’s spent time introducing her to audiences across the state and donors in the financial services world.
Reid and Dodd need no introductions; the industry knows full well that it can use their help.
Dodd has collected millions from the financial industry since his last reelection in 2004. But the Connecticut Democrat — who’s in for the toughest reelection fight of his career — says there’s little conflict between the industry donations and his legislative goals. Efforts to reform the system, says Dodd, will help the industry — particularly smaller players like community banks.
“It strengthens these financial services,” he says. “People that work for these institutions know what has to be done, too.”
All told, 19 of the 22 senators on Dodd’s Banking Committee have received checks from the financial industry this year, and each of those up for reelection in 2010 has received at least $180,000.
Read More Stories from POLITICO
In search of the Hill's Freemasons
What a f.... market. It was definitely ridiculous today in Europe: never seen such a low volume!!! All european indexes closed at the highest level for the year in a thiny volume..... with a major reversal at midday (ridiculous rumour of a bid from Novartis on Astra Zeneca... the former have a lot of homework to do with Alcon...). Then the bid of Xerox on Affiliated Computer (!!!!! Unbelievable! I bet my old ford mustang 1968 (in Paris France) that the deal will be cancelled within 6 months. Or maybe Xerox want to arrange an all in one bankruptcy.....
What a pity, what a shame.... I am a european portfolio manager and the last time I saw such a market was in early 2000....
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I question if CFC produced net new jobs. If you keep fixing your old car, you take it to the mechanic and that creates job. Buying cars creates foreign jobs. So maybe the CFC might in the end cost US jobs !
As conditions worsen, and undoubtedly they will (further), the programs / inticements become more and more outlandish. Once you go down the incentive path there's always a hangover when you finally decide that it was a bad idea to begin with.
As I've said before, what does Chrysler actually have to sell that they didn't have before? Nothing! They have the same models that weren't selling before. And GM, with fewer brands, has perhaps a handful of new models this year, like the Lacrosse, that may garner some interest, but not nearly enough to save them. The only feather in their cap right now is the debt they were able to successfully unload during the (questionable) bankruptcy.
Time will tell, but I believe they'll be back in court again in the not too distant future, but this time it won't be reorg.
The terms of the money back deal on JALOPNIK had a glaring deal killer in the conditions.
You can't get a refund if the car has $200.00 worth of damages. That includes the paint job and interiors.
1 good scratch and you have to keep it.
Eagerly awaiting cash for clunkers 2.0
Should I knock on my neighbors door and hand them money to buy cars directly or do we have to send it to DC first? I am all for efficiency.
Distruction is a form of Creation...
Why aren't you more on board for Project Mayhem I mean Fiat for Fords TD?
Oh I forgot were all capitalists here.
I can't believe this is even a headline. Anybody should be able to tell you that bringing future sales forward lowers later sales.
Think about the incentives over the last decade:
Cash back.
Near zero financing.
More cash back.
Zero financing with no payments for xx mo.
Now its Clunkers.
As the guy with comically oversized sunglasses says:
"We're stacken' em' deep and sellin' em' cheap"
We are on the opposite side of a transient market response in terms of overall sales that will end up lower than 07... surprise.
FYI Get a look at Ford's numbers.
They saw this coming, leaned up and secured large lines of credit. Solid company.
http://online.wsj.com/mdc/public/page/2_3022-autosales.html