When a bailout from the government is the best thing that's happened to your industry all year, you know there's a problem. For the car business, it may be the only good news for a while.
General Motors, Ford, Honda and Toyota all reported December sales declines of more than 30% from a year ago, finishing off a bleak year that saw industry-wide U.S. sales drop 16.7% from 2007, to 13.5 million vehicles.
With an economy that's expected to get worse before it gets better, many analysts see carmakers having an even tougher time of it in 2009. Some see sales plunging to 10 million units or fewer--nearly double the percentage drop of 2008.
GM and Chrysler, each of which just pocketed the first installment of its combined $17.4 billion emergency government loan, saw December sales drop 31% and 53%, respectively. Neither has the luxury of putting its government money to use building brand strength, making factory improvements or any other long-term initiative. Times are too dire for that.
"The money is just to stay alive for the next few weeks," says Jesse Toprak, an analyst at Edmunds.com.
Other depressing sales reports from December: a 32% drop at Ford, 37% at Toyota and 35% at Honda. To make matters worse, in order to push cars off the lots, five of the six major U.S. and Japanese automakers increased incentive spending from November, according to Edmunds.com, with Ford setting a monthly record of over $4,000 per vehicle.
Only Toyota kept incentive spending flat from November, though the $1,995 it spent per vehicle was still almost twice the rate in December 2007.
Getting hit the hardest were midsize sedans and crossovers, the market for which is populated by middle-income buyers who have begun getting squeezed out of auto loans if their credit scores drop under 700.
"The smallest cars and the trucks did relatively better," says Toprak, who notes that despite the drop in SUV popularity in recent years, their utility is not easily replaced in cold weather areas. So don't expect demand for them to go away altogether.
One silver lining amid the gloom: GMAC, the big financing arm of General Motors, used some of the bailout money to pour capital into the auto loan market.
The company is again offering loans to those with credit scores between 621 and 700, a range that engulfs an estimated 40% of all car buyers. GMAC is also offering financing for as low as 0% on many 2008 models, including the Chevy Blazer, Chrysler Town & Country, Ford Focus and Toyota Rav4.
But despite some loosening of credit, the auto industry won't find many buyers until there's a marked improvement in consumer confidence, a measure that currently sits at historic lows.
The latest consumer confidence reading from the Conference Board, a private economic research group, shows that 42% of consumers see jobs as "hard to get," while less than 13% believe their incomes will increase this year.
Can an Obama economic stimulus turn future perceptions around anytime soon and get people to open their wallets again? Don't count on it, at least not for awhile.
"When you get this big of a drop, climbing out will not be quick, and it will be painful," says Ken Goldstein, a Conference Board economist. He figures it will be another year before consumers see much light at the end of the economic tunnel.
As for actually being out of the tunnel before 2009 ends: "It's about as possible as winning the lottery," Goldstein says.
