Part 10 - GM and Chrysler plans

The Auto Industry
As nearly everyone expected, GM and Chrysler have increased their requests for government funding.

Also, unsurprisingly, they have reduced their future market size estimates from their earlier optimistic estimates provided in December 2008, only two months ago.

The top chart here is for GM and the bottom one is from Chrysler.

In early November, 2008 I commented; "It is certain that 2009 will be worse than 2008. If 2009 was to average 900,000 vehicles per month, i.e. 60,000 a month higher than October 2008 sales, total sales for 2009 would be 10.8m, a further fall of 20% on 2008 sales and a reduction of 40% in two years."

In December, the auto company estimates were;
North American auto capacity as projected in 2006, compared to sales
Year ----- Capacity ---- Sales ------ Over Capacity -- Proj -- CHR --- GM --- Ford
2006 ----- 18.82m --- 16.55m ----- 2.27m --- 13.7%
2007 ----- 18.95m --- 16.14m ----- 2.81m --- 17.4%
2008 ----- 19.23m --- 13.00m ----- 7.23m --- 47.9%
2009 ----- 18.76m ----- 11.87m ----- 6.16m --- 58.0% ----- 11.1m - 12.0m - 12.5m
2010 ----- 18.70m --- 13.37m ----- 4.20m --- 39.9% ----- 12.1m - 13.7m - 14.5m
2011 ------- n/a ------- 14.57m ------ n/a ------- n/a ----- 13.7m - 14.5m - 15.5m
2012-------- n/a ------- 14.35m ------ n/a ------- n/a ----- 13.7m - 15.0m -- n/a

Now in February, GM has reduced its baseline total market sales for 2009 from 12.0m to 10.5m, very close to the 10.8m figure I used in early November.

Chrysler has reduced its total market sales for 2009 from 11.1m to 10.1m, which now seems more reasonable.

However, although the revised total market sales are now more realistic, they show how much worse the situation is than that previously projected. This chart shows how dramatic is the fall in SAAR (Seasonally Adjusted Annual Rate) of auto sales.

The Chrysler presentation is very glossy and gives the impression that it is a slick sell. I am always suspicious of glossy presentations. I always feel they are concealing problems and trying to paint things as better than they really are.

The GM presentation is more workmanlike, although neither seem to have come up with plans drastic enough for their present situation.

This chart shows total auto and light truck sales from 1964 to 2008. The consumer bubble in recent years is apparent.

Also worth noting are the 1987 and 1988 figures. Many people remember the stockmarket crash of 1987, but it had very little immediate effect on total auto sales. The 9/11 caused no blip at all. That shows how this Great Recession is very different to 1987 and other recent events which might have been expected to affect total sales.

Thus that is not to say the auto companies are completely to blame for the total loss of consumer confidence. I have previously commented on the decline in value of consumer personal assets. The following table from the Chrysler plan shows the recent fall in the Dow and in house values.

This is the reason for the drop off in sales and sales will not recover until consumer confidence returns.

The majority of the population is against the cost of the stimulus package and fears the cost for the future.

Hence, if anything, I think the stimulus package as currently proposed will make consumers even more fearful for the future and they will save even more.

Part 9 below tells how the stimulus money could have been used to restore confidence to the consumer and the taxpayer.