The US Auto Industry’s Worst – Is It?

Carnage of the automotive industry continues, with each passing week throwing in a host of surprising knock out news. Be it the auto major Toyota overtaking GM in auto sales, or the deepest nosedive of Daimler’s stock since 1998, or the Ford’s job cuts of 200 salaried jobs to achieve a 15% workforce reduction by August 2008. Each is indicative of the prevailing turmoil, and has repercussions.

As consumers choose smaller cars auto part manufacturers brace up for supplying more of small car parts. And auto makers have begun contemplating mergers as a more creative way to sail safely through the storm.

June 2008 has seen the worst performance for the US auto industry since 1993 based on Y-on-Y month comparisons, a JD Power news release notes.

Here’s a comparison between 2007 and 2008 light vehicle sales.


Harrowing Forecasts

Earlier, the projections for the sale of light-vehicle for 2008 was about 14.95 million units, but today the forecast stands corrected at 14.2 million units for the year.

Take a look at the US light vehicle sales during the last 11 years.

Compared to 2007, a 12 percent decrease is expected for light vehicle sales in 2008. Further, the decrease would spread over differently across segments.

For instance, while the retail sales are projected to decline by 10 percent to 11.6 million units, the fleet sales would experience a 21 percent decrease to 2.6 million units.

Trends

Almost double the decrease is expected in fleet sales when compared to retail sales. The trend is indicative of the notion that manufacturers would reduce fleet sales, while continuing to salvage earnings from retail sales during the low phase. Incentives too are supposed to be moderate.

Another obvious trend is that consumers’ are switching to smaller vehicles ever since concerns about fuel economy increased, and skyrocketing gas prices fueled the worries more than ever. While the sales of SUV’s have decreased for sure, but the simultaneous increase in sales of smaller autos hasn’t been sufficient to offset the losses due to the fledgling sales in SUV segment.

The following graph shows the shift in sales from last year based on the types of automobiles.

Consider this, compared to the first half of 2007, the 2008 sales figures for SUVs did plummet by 26 percent during the corresponding period, the concurrent compact car segment sales were up only 28 percent. Not enough to make up for the decrease in SUV segment.

A lack of a sharp enough rise in sales in the compact auto segment can in part be attributed to inefficient supplies. For instance, the number of days these cars rested with the dealers (the “days to turn” measure) was an average of 57 days from January till June 2008. But it did show an improvement from May through June by averaging 47 days.

The Reasons

Although the hike in gas prices is often cited as the prime reason affecting the auto industry, other factors such as a weakening economic circumstances (viz. rising inflation, higher unemployment), and the long term side effects of the credit crises are in no way less important.

The Worst Is Yet To Come

Every time things worsen I wish that this is the nadir of it all, but an overwhelming majority of experts opine, that this is to last till at least a year. And now even the earlier forecasts for lower sales have been downgraded further.

Realistic expectations are that the worst is indeed yet to arrive, and that June’s dismal performance isn’t anything out of the ordinary. In fact it’s just a page in the book of industrial downturn. A year’s time is the least that’s needed before things begin to look up. But even a year later it wouldn’t be like abruptly waking up from a nightmare. As in 2009 too, a sudden recovery isn’t expected. Only a small upping to 14.3 million units in sales is forecast, with most of it attributed to retail sales.

Aside from the forecasts, if you’re a marketing pro in the auto parts industry, or are simply interested to know where consumers go about hunting for information before buying cars, check out this post: Automobile Buyers' Hunting Ground.