GM V-P Lutz: "Market Collapse"

U.S. Auto Sales, 1995-2008

Thanks to Alan Greenspan's easy money, American consumers glutted themselves on automobiles over a ten-year period. By 2006 there were 1.2 registered vehicles in the U.S. for every licensed driver. Think about that for a minute. If every licensed driver got in a car and hit the road at the same moment, that would still leave over 40 million cars sitting idle in garages and driveways. Going way out on a limb here, I will suggest that we need no new cars right now. Those parked cars represent at least a three-year supply.

That is not even counting unregistered new and pre-owned inventory on dealer lots, which are plumb full. In fact, finding a place to store new vehicles is getting to be a problem. "We are seeing cargo buildup at ports of entry on both coasts as well as at other inventory points such as factories and rail yards and dealerships," said Christopher Connor of Wallenius Wilhelmsen Logistics. Pretty soon unsold cars will be floating at sea on drifting container ships, alongside the ones with excess crude oil and the barges hauling solid waste to nowhere in particular.

As we exit 2008, we are selling cars in the U.S. at an annualized rate of 10.5 million. Most estimates for 2009 fall in the range of 11-12 million units. Robert Lutz, former product guru at Chrysler and now Vice-President for Global Product Development at General Motors, said in a Fox interview earlier this week that at these run rates, there is "no viability for the domestics, no viability for the Japanese, no viability for the Germans." The $15 billion now being offered by congressional Democrats to the Big Three is merely a "short-term liquidity measure" that "gets us to the next Administration." His characterization of 16.5 to 18 million units as "normal" may be a bit disingenuous. If that is what he thinks is necessary for Detroit's survival, get ready for some bankruptcies.

[update, December 12:]
GM announced today that it will reduce Q1 (2009) production at its North American plants by 250,000 units. The announcement came just ten days after it had projected Q1 volume of 600,000 units, which, if we do the math together, means a revised expectation of 350,000. A year ago GM was producing over 1 million units per quarter and losing money doing it. GM's 8.375 percent bonds due in July 2033 are now trading at 15 cents on the dollar, effectively yielding 57.6 percent--which tells you what bond traders think of GM's long-term prospects.

[update, December 22:]
Toyota announced today that it will lose money for the first time ever in its fiscal year ending March 31. Sales for the year are expected to decline 18% to 7.54 million units worldwide (2.17 million units in the U.S.). Last week Honda said it expected its U.S. car sales for the year to fall 14 per cent to 1.59m units. "When the American car market shrinks to 11m vehicles," points out Koji Endo, industry analyst at Credit Suisse, "no one is going to make money.”

[update, January 15, 2009:]
GM today cut its estimate for 2009 U.S. industrywide auto sales to 10.5 million units, which, if accurate, would be a "disaster," according to consultant John Casesa. “It’s a level of demand that is far below Detroit’s break-even point.” GM needs to submit a viability plan to the U.S. Treasury by March 31--or else give back the $13.4 billion in emergency loans released, not by Congress, but by the Bush Administration.