As is by now well known, when it comes to upside theories debunking the bearish "economic contraction" case, there are two core arguments: a Japanese pick up, and a surge in automotive production and sales. And following a jump in Japanese industrial production last week, there was a brief consensus that the soft spot as a result of the earthquake and tsunami have been overcome. Until the subsequent Tankan confidence index release, that is. And in the meantime, nobody can still explain how the economy is expected to return to trendline if peak electric consumption can not be met by a crippled electrical infrastructure. Which leaves auto production, and the latest iteration of inventory restocking. Zero Hedge already discussed the glaring split in inventory data between the Chicago PMI and the Manufacturing ISM, which as Goldman noted previously is a major wildcard in determining future GDP growth. Perhaps David Rosenberg said it best in his Friday Breakfast with Dave: "While there is no doubt that we will see an inventory boost from a revamping of auto production in the coming quarter, what will be critical is whether final sales will hold up. So far in June, chain store sales are running below plan. Auto sales, however, are the real wild card and could hold the key as to whether we are, in fact, at an inflection point. Go back to August 2007 and they put in an interim peak of 16.3 million annualized units. They bottomed for good in February 2009 at 9.2 million units. Then they hit a nearby high of 11.7 million units in March of last year just ahead of the market downturn and "double dip" concerns, only to then trough at 11.5 million in August 2010 just as the market was ready to rip. And then, in February of this year, sales peaked at 13.4 million in February. The May number was 11.8 million - and today we get June. Stay tuned." Consensus was for a significant rise to 12.0 million in June. The actual number was 11.45 million. The lowest since August 2010. So much for an inflection point (not to mention that all of this ignores the record channel stuffing in post-reorg GM).
Here is how the June "end of the soft spot" appears in chart form.
Goldman's Brian Jacoby who was among those expecting a 12 million SAAR print, was unable to provide any favorable spin on the data, with the one observation that some California sales could have been deferred to July following a 1% cut in the state's sales tax.
Low inventories and reduced incentives remain a drag on sales
The June 2011 US light vehicle SAAR (seasonally adjusted annual rate) was 11.45 million units, well below the Bloomberg consensus of 12.0 million. June 2011’s SAAR was above the 11.1 million reported in June 2010, but below the May 2011 SAAR of 11.8 million. Low inventories at the Japanese OEs and reduced industry incentives continue to weigh on sales. In addition, Ford mentioned that California announced a 1% reduction in the California sales tax for July, which may have caused some consumers to delay vehicle purchases in June in order to take advantage of the July sales tax cut. California is the largest auto market in the US. We expect the monthly SAAR to stay low until inventories recover by 3Q. Our SAAR estimates remain at 13.0 mn in 2011 and 14.2 mn in 2012.
Ford sales up 9.2% yoy adjusted; slightly below our estimate
Ford’s June light vehicle sales increased 9.2% yoy on a selling-day adjusted basis, slightly below our estimate of up 9.8%. Ford’s retail sales were up 8.7% yoy on a selling-day adjusted basis (13% yoy unadjusted), and total fleet sales were up 9.6% yoy (14% unadjusted). Ford’s truck sales were up 7.3% yoy and car sales were up 12.5% yoy, on a selling-day adjusted basis. Ford ended the month with dealer inventory of 426,000 units, or a 57 days’ supply. The company made no changes to its 3Q North American (NA) production guidance of 630,000 units (up 7.5% yoy).
Chrysler sales up 25.2% yoy adjusted; well above expectations
Chrysler’s June vehicle sales increased 25.2% yoy on a selling-day adjusted basis, well above our expectations of up 19.6%. Chrysler’s truck sales were up 37% yoy and car sales were up 1%, on a selling-day adjusted basis. The company ended the month with dealer inventory of 314,065 units, or a 68 days’ supply. Truck sales remain solid with the Ram pickup truck up 29.5% yoy (adjusted) and the Grand Cherokee was up 196% yoy (adjusted). The new Chrysler 200 sedan sold 7,219 units in June, up from 7,098 units in May 2011, and well above the outgoing Sebring it replaced.
GM sales up 6% yoy adjusted; well below expectations
GM’s June sales increased 6.0% yoy on a selling-day adjusted basis, well below consensus. GM stated that its truck inventories ended June at a high 122 days’ supply, but it plans to cut production and reduce it to 100-110 days. Retail sales increased 16% (unadjusted) and fleet was down 1%
We are very curious how Deutsche Bank spins this second strike to the end of the "soft spot."