Will Anything Stimulate Auto Sales?
Nov 11th, 2008 | By Andrew Gordon | Category: Financial NewsAnother stimulus check should be coming our way as the market keeps falling.
If it doesn’t happen as one of the final acts of the Bush administration, it will happen as one of the first acts of the Obama one.
The question is, will it help the fast-falling auto industry?
It’ll help retailers. The overwhelming evidence is that the last round of stimulus checks helped pick up consumer spending in the second and third quarters.
But big-ticket retailers like auto dealers play in another sandbox entirely. Unless these checks have a couple of more zero’s than the previous ones, the auto industry’s fate is tied to getting another $25-billion loan package from the government.
The auto industry needs it. And from Obama’s latest statements, it looks like it will get it. And just in time.
The auto industry is getting battered from three trends…
1. A worsening global economic slowdown
2. A global credit crisis which has dried up lending (including for autos)
3. A strengthening dollar, which makes American cars more expensive in overseas markets
The numbers published last week on October sales were abysmal. Toyota (NYSE:TM) reported a 23 percent drop, Ford (NYSE:F) a 30 percent drop, GM (NYSE:GM) 45 percent and Chrysler 35 percent.
GM is burning cash so quickly it warned this past Friday it’ll run out of money during the first half of next year. It sounds like GM is in shock: “In my 27 years, I have never seen a month like this. It was like somebody turned off the lights in the month of October,” a GM official said.
The auto industry is in a free fall. September’s auto sales numbers were terrible. It showed a loss of 30 percent. October’s was worse. It showed a loss of 33 percent.
It’s bad and getting worse. By all means don’t go bottom-fishing in this sector now. If anything, shorting the sector makes much more sense.
Source: What’s Going to Stimulate Auto Sales?
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Andrew is currently the Editor-in-Chief of two monthly investment research services INCOME and The Wealth Advantage. He has also become a leading expert in utilizing Exchange Traded Funds to profit from rising and falling market sectors.
If the government wants to stimulate car sales, a stimulus check is the wrong approach. A better way would be a voucher good for 50% of any new vehicle of your choice.
Just to make sure the carmakers and dealers don’t play games with the prices, a requirement would need to be that the sales price cannot exceed factory-to-dealer invoice for that exact model, trim, and options as of 3 months ago.
$60,000 off a BMW 760Li would motivate me to go stimulate the economy, how about you?
The most profitable area for car companies became their finance divisions, so the sales of their cars won’t get them going in the right direction, it would be the return to the easy credit that pushed sales and the even more profitable leasing, which has run dry. That’s their problem – not sales but the easy credit that drove them. My recommendation: a cash voucher for a 1990-1995 Volvo or Mercedes paid in full. Continuing to bailout the Big Three is just a way of keeping the debt machine going.