US car sales in 2008 are set to drop by 17.7 per cent compared to 2007, contributing to what is expected to be the worst year since 1980 for the global automotive industry, according to iSuppli Corp
Automobile sales in the United States, consisting of cars, SUVs and light trucks, are expected to fall to 13.3 million units in 2008, down 17.7 per cent from 16.2 million in 2007.
Western European auto sales are expected to decline to 15.4 million, down 8.2 per cent from 16.9 million in 2007. Worldwide auto sales in 2008 are set to decrease by 6.3 per cent to 66.5 million, compared to 71 million in 2007. A further worldwide decline to 62.2 million, or a 6.5 percent decrease, is projected for 2009.
The situation is not expected to improve anytime soon, with US and Western European sales not expected to recover to 2007 levels for five or six years. The figure in the attached file presents iSuppli's forecast of automotive sales in the United States and Western Europe.
“The auto industry in 2008 has been hit by a perfect storm of negative factors. The first was the impact of soaring gas prices, which served to lower sales everywhere, but mainly in the United States,” said Egil Juliussen, PhD, principal analyst and fellow, automotive research, for iSuppli. “Next, the credit crisis cut into consumer spending and curtailed the financing of new car purchases. This issue remains a major hurdle, with the demise of lending at Chrysler Financial and the increasingly cloudy outlook for General Motors' GMAC lending arm.
Furthermore, the consumer automotive leasing business model has broken down, mostly in the United States. Finally, most economists agree that a severe recession has broken out in the United States, one that will linger for four to six quarters.”
In 2009, US auto unit sales are expected to decline by another 4.4 per cent to 12.7 million units. Western European sales will drop by a more severe 9.9 per cent to 13.9 million. Following 2009, auto sales in the United States and Europe are expected to begin a slow recovery.
As steep as these declines are, they do not represent the worst-case scenario, since the credit crisis has put forecasting methodologies in uncharted water. Hence, it is good to look for guidance from past history.
The 1974 recession brought the steepest one-year US auto sales decline in history, at nearly 21 per cent. However, sales experienced a major recovery two years later.
The 1980 recession generated the second-worst year in history for US auto sales, with a decline of 19.1 per cent.
But the 1980 recession lasted much longer and auto sales declined for four years in a row. This trend also is projected for the current recession as 2008 will be the third consecutive year of auto sales declines and 2009 will be the fourth.
“The three US automakers recently testified in the Senate and House for a $25 billion bridge loan to survive in this brutal credit-crunch era,” Juliussen noted. “Most of the legislators were not very sympathetic and had tough questions for the three CEOs and the president of the UAW. It is difficult to read the political tea leaves, but it appears unlikely that Congress will grant the loans this year. There is general agreement that the next administration will be more receptive to loaning money to Chrysler, Ford and General Motors.”
Based on the testimonies, it sounded like both General Motors and Chrysler will run out of operating cash within months or even weeks depending on auto sales, Juliussen added. In the worst case, General Motors and Chrysler would be forced to file for bankruptcy before the Obama administration takes over on January 20, 2009. Ford is expected to have enough cash to last longer. Hence, November and December auto sales will be a crucial indicator of whether General Motors and Chrysler need to file for bankruptcy. General Motors sales declined by 45 per cent in October and Chrysler decreased by 35 per cent, while the overall decline was 32 per cent. iSuppli
is forecasting an average decline of 35 per cent for auto sales for November and December compared to the same period in 2007 to reach the current 2008 auto sales mark of 13.3 million.
For more information, visit www.isuppli.com