Auto Industry Braces For Downturn as Sales Growth Slows

[313WX]

It'll be interesting to see how severe this downturn is, and if it yet again puts a halt to Detroit's "comeback" like it did in 2008-2010...

http://www.nytimes.com/reuters/2015/...html?src=busln

[Cincinnati_Kid]

Doesn't surprise me. People are holding on to their cars longer. New cars and trucks are very expensive, and add to that, the highest insurance rates in the country, you can see why.

[emu steve]

It'll be interesting to see how severe this downturn is, and if it yet again puts a halt to Detroit's "comeback" like it did in 2008-2010...

http://www.nytimes.com/reuters/2015/...html?src=busln

My guess, no big problem. Maybe a reasonable slowdown in autos with small impact on Detroit.

Sales are very high and might dip to more sustainable levels but I don't think anyone sees anything happening ala 2008 when the entire economy literally collapsed.

The source of this article [[Reuters, N.Y. Times) is good, but there are a number of folks trying to peddle 'gloom and doom' for the economy. I remember Chris Wallace [[Fox News Sunday) in early April peddling the slowdown in job growth [[March data) and expected, [[and actual) slowdown in the economy for the first quarter... But we all know the reason, "It is the weather, stupid." [[the harsh weather in Feb and March really hurt the economy in the Midwest, Northeast, Mid-Atlantic, etc.). This was borne out in April data as construction numbers bounced really, really strong [[hiring which would have begun in March got pushed back to April).

The biggest 'problem' I see is that the stock market has been in a bull market since 2009 and that is fairly long, but bull markets can last a lot, lot longer...

One could argue that we 'used' to live in an economy based on big ticket items [[like automobiles) and that our economy was cyclical; we had cyclical recessions. Now I see problems not due to cyclical recessions but craziness by the big money barons in the financial sectors, etc. Not a lack of demand for automobiles, houses, etc.

[Lowell]

The article cites "sales growth slowing" but I think the downturn is quite a ways off. Autos are selling a a high level so even if they were to flatten out at the current level everybody would still make money. This is not a grow or die situation.

Factors driving sales in the US market are the economic climate, which remains good, low gasoline prices, cited in the article, and average fleet age, not cited, which is running at over 11 years - near historical highs. All those are ongoing and stable. Profits are being hit by sluggish foreign sales which could be on the upswing if and when the US market saturates.

The luster has been off share prices of manufactures and parts makers for a while.

[emu steve]

The article cites "sales growth slowing" but I think the downturn is quite a ways off. Autos are selling a a high level so even if they were to flatten out at the current level everybody would still make money. This is not a grow or die situation.

Factors driving sales in the US market are the economic climate, which remains good, low gasoline prices, cited in the article, and average fleet age, not cited, which is running at over 11 years - near historical highs. All those are ongoing and stable. Profits are being hit by sluggish foreign sales which could be on the upswing if and when the US market saturates.

The luster has been off share prices of manufactures and parts makers for a while.

Lot of good points, esp. the average age of the fleet. Lot of old automobiles still out there which are [[or approaching) the end of their useful life. Still plenty of room for the used car market with folks able to buy new cars doing so and selling their still useful cars to those with limited means.

And very low interest rates. So long as interest rates remain very low [[or low) automobiles and houses will continue to sell.

[Mzsuzuki]

And I just read an article entitled " Many FCA US plants will skip summer shutdown" ?

[mwilbert]

Someday there will be a recession. Someday auto sales will fall. No doubt. But as far as the article is concerned, it says that sales have risen 6% so far this year, that they were "healthy" in April, and that there might be cyclical decline in 2017. So I wouldn't panic yet.

[Jimaz]

And I just read an article entitled " Many FCA US plants will skip summer shutdown" ?

I just heard that on WWJ too. They said it was due to high sales.

[Cliffy]

Car companies are doing good and hiring people left and right. The next big market they will focus on is India. This article just says sales growth will slow down. Well thats life.

[Gpwrangler]

Global auto sales are rippin'. Looking at small car sales or big 3 numbers won't give an accurate picture of the industry or the supply chain.

[emu steve]

It'll be interesting to see how severe this downturn is, and if it yet again puts a halt to Detroit's "comeback" like it did in 2008-2010...

http://www.nytimes.com/reuters/2015/...html?src=busln

I re-read this and this seems typical 'Wall Street' type writing:

Let's assume 17M [[as in the article) for this year. Also assume 16M for the following year.

So there is a 6% decline in sales and Wall Street goes crazy, automobile stocks decline 25%, yet the person on the assembly line just shrugs his [[or her) shoulders. He [[or she) doesn't see any great recession.

Wall Street is addicted to growth and greed. Main street seeing 17M, 16M, 15M, 16M annual automobile sales doesn't see a problem. Wall Street does...

[Dan Wesson]

Wall Street knows a thing or three about a tactic used by the auto makers. Auto makers do it for a number of reasons.

http://www.investopedia.com/terms/c/channelstuffing.asp

http://en.wikipedia.org/wiki/Channel_stuffing

[emu steve]

Wall Street knows a thing or three about a tactic used by the auto makers. Auto makers do it for a number of reasons.

http://www.investopedia.com/terms/c/channelstuffing.asp

http://en.wikipedia.org/wiki/Channel_stuffing

Perhaps, but one can't do this forever.

I remember one job I had where my performance was measured very, very easily monthly. So I wanted to 'look good' at the end of the month. So I did all I could to look good on the last day of the month and then eased off the beginning on the next month.

But in the short run I was doing little more then inducing a little 'short-term' volatility in my performance, causing short term + and - spikes, but it really didn't make any difference. It was pretty silly.

Has Detroit been 'channel stuffing' for SIX years? Can one do it that long?

'Cash for Clunkers' was a bit of a program to 'jump start' sales and it did without a big falloff after the program ended. It gave Detroit a chance to clear inventories which the automobile manufacturers needed to do, etc.

[Jimaz]

GM plans to invest $1B to revamp Warren Technical Center

General Motors announced Thursday that it will invest $1 billion in its Warren Technical Center campus, creating about 2,600 new jobs to support future business growth at the National Historic Landmark site....

Investment highlights include:

• Construction of new design studios
• Construction of a parking deck for Design employees
• Rebuilding and renovating some existing R&D facilities
• Construction of a multi-story IT building adjacent to the current Michigan IT Innovation Center and a new parking deck for Innovation Center employees
• Construction to accommodate additional testing areas at the Advanced Energy Center
• Extensive office upgrades including new carpet, paint, furniture, reconfiguration of miscellaneous work areas in most Tech Center buildings, improving the work environment for all campus functions, including the Vehicle Engineering Center or VEC

Since this is local and a long-term investment, it doesn't refute the OP. Still, it's welcome news!

[CrashDummy]

Detroit is not the target audience for this article. There is nothing in there that you couldn't see on any automakers own forecast sheets for the past 5 years.

[rjlj]

Economist: Auto sales to hit all-time high in 2017


http://www.freep.com/story/news/loca...itol/27361749/

[emu steve]

Economist: Auto sales to hit all-time high in 2017


http://www.freep.com/story/news/loca...itol/27361749/

Isn't there a joke that economics is the 'dismal science'?

We have one article predicting a slow down and another predicting an all time high [[in auto sales) which together simply tells me nothing. x 4

[Hermod]

Has Detroit been 'channel stuffing' for SIX years? Can one do it that long?

Chrysler did it routinely back in the 1970s. They routinely sent excess production to the "car bank" and had acres of new cars sitting out around Detroit. Plymouth, Dodge, and Chrysler dealers would then game the system and hold off on ordering till the company got desperate and really knocked down the wholesale price allowing the dealers to have massive sales in which the end customer got a deal and the dealer made extra profit on the same deal.

[ndavies]

Isn't there a joke that economics is the 'dismal science'?

We have one article predicting a slow down and another predicting an all time high [[in auto sales) which together simply tells me nothing. x 4

The articles are talking about 2 different regions. the NY times article is talking about stock price which is tied to world wide sales. The Freep article is about them selling 17 Million vehicles in the US. The US sales are great, the slow down is in the rest of the world.

And of course US sales growth will slow. They're selling more cars than have ever been sold in the US in one year. The entire car distribution system is taxed to it's max in the US. While it may go up a little from here, It's more likely to go down due to the cyclical car market.

Even if car sales fall to the previous levels, it won't be as bad as the last decline. The companies have greatly cut fixed costs and can still be profitable with lower sales volume.

[Patrick]

It's all the more reason for SE MI to diversity its economy. Seems that the region is still too reliant on a single industry. Am I incorrect?

[DetroiterOnTheWestCoast]

Why does "slower growth" equate with a "downturn"?

[Jimaz]

Why does "slower growth" equate with a "downturn"?

I'm glad someone noticed that.

The only way I could make sense of that would be if the "slower growth" of a function were compared to the "downturn" of its derivative. True by definition, but it's like comparing apples with oranges. It doesn't really mean much.

[[I am a recovering calculus addict.)

[erikd]

The articles are talking about 2 different regions. the NY times article is talking about stock price which is tied to world wide sales. The Freep article is about them selling 17 Million vehicles in the US. The US sales are great, the slow down is in the rest of the world.

And of course US sales growth will slow. They're selling more cars than have ever been sold in the US in one year. The entire car distribution system is taxed to it's max in the US. While it may go up a little from here, It's more likely to go down due to the cyclical car market.

Even if car sales fall to the previous levels, it won't be as bad as the last decline. The companies have greatly cut fixed costs and can still be profitable with lower sales volume.

Ndavies is absolutely correct.

In addition to his analysis, it is also important to understand that the Great Recession was the worst economic event in America since the Great Depression, and is not representative of the normal economic downturns that are part of the regular economic cycle.

There is a huge difference between a normal cyclical recession that reduces annual auto sales from 16 million to 15 million, and an economic crisis that reduces sales from 16 million to 10 million.

[313WX]

Why does "slower growth" equate with a "downturn"?

Further down in the article, the analyst being interviewed stated bluntly that a correct or cycle downward is expected soon.

[313WX]

Economist: Auto sales to hit all-time high in 2017


http://www.freep.com/story/news/loca...itol/27361749/

1. Light vehicles are by far the lowest selling line of vehicles the Big 3 automakers have. So that doesn't mean much.

2. The analysis was done by someone in Michigan, who [[living in a state where this industry is the life and blood of it) has a special interest in the auto industry not declining any further. So I wouldn't put too much stock in their say.