Gloomy Outlook In U.S. Auto Sales

July 7, 2010

First look at June 2010 auto sales in the U.S. indicates improvement, with hope for an ailing economy. However, a closer inspection of sales figures reveals a gloomy outlook for car sales in particular, and the economy as a whole.

Auto sales in June grew 14 percent over June 2009.However, what appears as a whopping increase isn’t as good as initially presented. There are a few reasons for this. June 2009 was one of the worst months on record, with annualized sales of just 10.9 million vehicles. June 2009 was also a month when Chrysler emerged from bankruptcy and General Motors filed for protection from creditors. Even worse,when June 2010 sales are translated into a Seasonally Adjusted Annualized Rate (SAAR), they come out to a dismal 11.1 million vehicles, only slightly better than a year ago.

If that weren’t bad enough, summer is typically the best period for new car sales. Yet auto sales for June 2010 actually declined 10 percent over May 2010. This was the opposite of what was hoped for and expected. So even though a year-to-year sales increase of 14 percent initially looked pretty good, a deeper analysis of the figures reveals disappointing results.

Expected Auto Sales in 2010
The U.S. auto industry was walking tall in 2006 when auto sales hit a record 16.5 million units for the year. However, things began to turn in 2007 when national sales declined to 16.1 million vehicles. The auto industry didn’t believe that things could get worse. Then in 2008, things got much worse when sales fell to 13.2 million. At that point a shocked U.S. car industry had no idea how bad things were going to get. They are still trying to recover from the 10.4 million units sold in 2009.

Industry experts had been forecasting auto sales in 2010 of up to 12.5 million units. This projection anticipated a continuing economic turnaround. However, most experts now agree that figure is out of reach. Many experts now expect this year’s sales to be in the 11.3 to 11.5 million range, well below previous estimates. 

Economic Outlook
Unemployment remains high with no relief in sight; national housing figures continue to be pessimistic; consumer confidence seems to be on a rollercoaster ride with different regions of the country reporting fluctuating results. Still, a constant element in the country’s economic outlook is vehicle sales. If auto sales are strong, it reflects strong consumer demand across the economic spectrum. However, the reverse is also true. And last month’s declining car sales are giving economists pause.  

If overall retail demand is reflected in declining car sales, the economic outlook for the rest of the year isn’t great. Auto industry experts are hoping for a moderate recovery to the end of 2010. Anything above the 11.5 million unit sales level will signal the moderate recovery experts are hoping for. However, something less than that--stagnation or a further decline--is all too possible.

The harsh reality is that as the auto industry fares, so too does the rest of the nation. One in five retail dollars spent in this country is generated by the auto industry. Stay tuned as we watch our future unfold before our eyes, in the auto industry and beyond.

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