Posted by: David Kiley on January 15, 2009
It looks like the worst-case scenario for 2009 auto sales are catching on. General Motors, which last month predicted sales of about 12 million vehicles this year, with a low-end estimate of 10.5 million, today said its most pessimistic forecast is likely.
GM said it was adopting the lower estimate in its planning because of continued uncertainty over when the market for new cars might recover. “What we’re trying to do here is be very conservative about our assumptions,” GM President and Chief Operating Officer Fritz Henderson said at a Deutsche Bank analyst conference in Detroit that was webcast.
U.S auto sales fell to 13.2 million in 2008, down 18% from 16.1 million in 2007. It was the biggest year-over-year sales decline since the oil embargo crushed auto sales in 1974. The fourth quarter 2008 sales for the industry, when analyzed for sales per licensed drivers, was the lowest rate of sales since World War Two.
Several factors are contributing to the low forecasts: rising unemployment, lack of credit, declining house values and financial markets that are way down from a year ago. All that is combining to crush consumer confidence, especially as it relates to buying big-ticket purchases.
The Obama Administration’s nearly $1 trillion stimulus package will have some effect on the economy, credit markets and unemployment rates. But few analysts and economists are willing to be pinned down on how much it will help.
While asking lawmakers for $18 billion in loans, the Detroit automaker said it expected industry-wide sales of about 12 million for 2009, with 10.5 million seen as a worst-case scenario. The Treasury Department allocated $13.4 billion in loans to GM last month, and the company must submit a plan to show the feds that it is cutting enough costs to become financially viable, or the government can call back the loans March 31.
Research firm Global Insight has projected sales as low as 10.3 million units this year. Ford projects U.S. vehicle sales of at least 12 million, 13 percent more than GM’s latest outlook.
If GM or Global Insight is correct, it is likely that GM and Chrysler will have to go back to the Treasury for more loans, and that Ford will have to tap the $9 billion credit line it has requested. Sales “anywhere near 10 million will be a disaster for the industry,” said John Casesa, managing partner at consulting firm Casesa Shapiro Group in New York. “It will make an already dire situation even worse…It’s a level of demand that is far below Detroit’s break-even point.”