(Business Intelligence Briefs) The good news is that automakers are getting better and better at making cars efficiently. The last two years has forced changes on almost every company that makes vehicles, and most have responded with innovations and improvements that would usually have taken years, perhaps decades, to introduce under better conditions.
With their financial backs to the wall, the carmakers have been forced to make up for lost sales with ruthless business efficiency. The Chrysler tie to Fiat has meant the company has adopted the Italian system that turned Fiat around in Europe, and this was accomplished in less than a year. GM and Ford are both well into their five year plan of efficiency, not to mention ahead of schedule. New models are coming out sooner than anticipated, and there has been serious development of the in-demand alternative fuel vehicles. The same process has been underway with Toyota, Nissan, Honda as well as the other Japanese and Korean automakers. From a strictly manufacturing perspective, these are good days in the automotive sector. If only the consumer was responding with similar enthusiasm.
This is the bad news part. As expected, the markets dried up after the incentives expired, and the latest numbers look pretty grim in comparison to what they were a year ago. The "cash for clunkers" program was in full swing in August of last year, making this August look anemic. On average, sales in the industry fell by about 21% from a year ago. This decline surprises few as the incentive pattern has been experienced in many industries, notably housing, during the last year. The more important number in 2010 is the month-to-month comparison, which remains pretty steady. Sales in August were about 5% lower than in July, a normal occurance given the time of year.
Analysis: There are a couple of indicators giving the automotive manufacturers some hope for the rest of the year. The first is that luxury cars are starting to sell better than they have for the past two years. Mercedes and BMW have seen increases of around 15% from last year, and there are similar numbers for Lexus, Infiniti and Cadillac. These are the brands that sold scantily during the "cash for clunkers" period. The demand now is related to a willingness on the part of lenders to take some risks with these consumers.
That is the second piece of good news for the sector although the manifestation of bank interest is still very spotty. Banks are slowly coming out of their hibernation and at very different rates throughout the country. The willingness to lend is nearly entirely based on the situation the bank itself faces. More and more, community banks are getting engaged, and that has been good news for dealers in those parts of the country.
The anticipated harvest this year will be good news for dealers in farm country. The expected profits from high commodity prices will allow farmers to replace equipment, and there are reports from many parts of the agricultural community that suggest that farmers will be buying a lot of new trucks and cars in the months ahead. That is part of the overall awakening of consumer demand. The dealers are noticing more shoppers, more attendance at car shows and signals that demand is waking up. Now comes the challenge of matching want with the ability to get a loan and make the payments.
Chris Kuehl, of Armada Corporate Intelligence, is NACM's economic advisor