GM's Sales Forecast Sinks With Consumer Confidence

Posted by: David Kiley on January 15, 2009

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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.”

Reader Comments

Matt Lechner

January 16, 2009 6:13 AM

On the sales and repair shop floors of America's car dealers, Big 3 representatives must themselves take stock of the situation and work the product. People still need and want new (and used) cars, and the quality level is higher, and pricing level more reasonable, than ever before - so if you want to keep those companies going, the enthusiasm and determination has to start with the individual sales rep's and the service technicians who both present the face of the firm on a long term basis. GM, Ford, and Chrysler are great firms because of you, and your colleagues at the plants and supply chains. We have supported your recapitalizations, of which there may be a little more to come, and your own finance departments are trying to help you, but the long term viability of your firm(s) depends on you. There is something of an economic lull out there, which happens, but you must keep up your enthusiasm and determination and make those companies the very best they can be, and do not fall prey to the false voices of socialism and stagnation. You market, sell, and lease and repair the cars enthusiastically and professionally, like the high quality business people you are, and the firms will stabilize and the negative headlines will disappear. The future of those firms is in your hands, and you can do it !

Matt Lechner - CFP, CRPS, CIMA, FRM
Chairman - WSSIG, the Wall Street Special Interest Group

Tony

January 16, 2009 9:08 AM

I believe most people in prior blogs predicted GM and Chrysler would be going back for more bailout - stop the freakin bailouts, let them fail/reorganize and let the companies that currently have successful business models prosper as the capitalist markets intend

Jeff B

January 16, 2009 10:03 AM

This is exactly the reason that people like myself were against this bailout in the first place. There's little doubt in my mind we did not get the straight scoop the first time, and I'll bet there's more bad news in the pipeline. All this hand-wringing about lack of credit may be one factor, but the BIG problem remains -- these firms are not building cars people want to buy.

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