October Auto SAAR Expected Just Over 10 Million, Will CfC Overhang Persist?
With October car sales forthcoming from the Big 2 (and Fiat), the Street is being explicably cautious, with October SAAR estimates slightly higher than 10 million. As a reminder prior year's October SAAR came in at 10.8 million, and that was in a month following the standstill of the entire economy. What was that about increased lending going to consumers courtesy of the Fed's monetary largesse? Or does that only account for "big ticket" purchases like iPhones? Yet where the street may be in for a surprise is its optimism that the Cash For Clunker overhang has subsidized: a rather bold assumption for an economy running entirely on government stimuli.
Goldman Sachs expects the following YoY declines from GM, Ford and Chrysler: -2%, -5% and -30% (when will someone put that last on that list out of its mysery?) Away from Broad Street, Ward’s expects GM to be down 1.1%, Ford down 4.5%, and Chrysler down 30.7%. GM is expected to outperform courtesy of its own "CfC" variant in the form of sizable purchasing incentives. The question of whether the firm generates any profits on car sales at this point seems no longer relevant: it is all about the V in the PV revenue variance equation. If the next step for GM is wholesale dumping, so be it. Another data point: October 2009 had 28 selling days, versus 27 last year; therefore sales for the Detroit 3 will require a selling day adjustment.
Below is Goldman's commentary in SAAR expectations:
October’s US light vehicle sales will be reported on Tuesday, November 3. We expect a seasonally adjusted annual selling rate (SAAR) of 10.1 million units in October 2009 – a significant improvement versus the 9.2 million SAAR in September 2009, but below the 10.8 million reported in October 2008. The hangover effect associated with the Cash-for-Clunkers program has subsided, but underlying consumer demand remains mixed at best. On a positive note, industry inventories remain at appropriate levels, with approximately 56 days of supply at the start of October according to Ward’s Automotive. Goldman Sachs Equity Research is expecting a SAAR of 10.0 million units in October, while Ward’s is forecasting 10.4 million. For FY2009 and FY2010, we continue to forecast a 10.5 million and 11.7 million unit US light vehicle SAAR, respectively.
And never one to come packaged without at least a little RDA of optimism, Goldman is optimistic on industry pickup in Q4 and Q1 2010.
CSM is forecasting 4Q2009 and 1Q2010 North American (NA) production of 2,735,000 units (up 1.7% y-o-y) and 2,522,000 units (up 49% y-o-y), respectively. The increases reflect much easier y-o-y comps and the rebuilding of dealer stocks (see exhibits 1 and 2). Regarding Ford, we expect the company to produce 570,000 units (up 33% y-o-y) in 4Q2009 and 540,000 units (up 49% y-o-y) in 1Q2010.
With news due to hit shortly after noon, keep your eye on that news ticker.
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