You can come up with lots of reasons why investors shouldn’t panic at the slide in February U.S. auto sales to a seasonally adjusted annual rate of 10.4 million. That was down from the seasonally adjusted 10.8 million sales rate in January 2010 although up from the 9.2 million rate of February 2009.
Snow storms. Troubles and more troubles at Toyota. A big drop in sales from brands such as Saturn, Pontiac, Hummer, and Saab that General Motors (GM) has decided to discontinue.
All those cut in February sales and make hard to argue that the recovery in the auto industry has stalled.
But the numbers aren’t a rousing endorsement of pedal to the metal growth either.
Especially once you take account of the month’s big increase in sales to rental car companies and other fleet owners. Fleet sales almost doubled for General Motors ad climbed to `13% of sales at Toyota from 8% in February 2009. Fleet sales typically carry much lower margins than sales to individual consumers. (Auto sales ran at an average rate of 16.8 million from 2000-2007.)
For a reliable read on the industry we’ll just have to wait for March data and hope that nothing—sleet, snow nor dead of night—interrupts auto sales in that month.
But February did bring honest to goodness good news for some individual car makers.
Sales at Ford Motor (F) jumped by 43% from February 2009. Honda Motor (HMC) saw a pickup of almost 13% in U.S. sales And Hyundai Motor gained almost 12%.
General Motors reported that total vehicles sales increased by 11.5%. That fell short of Wall Street projections of 20% growth.
As you might expect, Toyota Motor’s problems with sudden acceleration that led the company to suspend sales of eight models didn’t help sales at the Japanese auto maker. February 2010 U.S. sales for Toyota dropped by almost 9% from February 2009.
Lower than projected growth at General Motors, the troubles at Toyota, and Ford’s huge sales growth combined to give Ford the No. 1 market share in the U.S. market for the first time since 1998.
Something to watch today: See if the drop in February’s annualized sales rate—even with all the mitigating factors—leads investors to sell shares of auto suppliers such as Jubak’s Picks Johnson Controls (JCI). You might get a chance to build positions in a sector that looks like a big beneficiary of even a modest economic rebound.
Geosan,
The health care problem needs to be broken down into it’s component parts:
1. Cost
2. The uninsured
Unfortunately, our politicians seem to be concentrating on #2 and ignoring #1. Fixing #2 could lead to exacerbating problem #1, UNLESS you break down health care into two areas:
1. Exceptional health care
2. Routine health care
Routine health care should NOT come under a 3rd party payer, regardless of whether it is private insurance or the public option.
Lakesider’s comment has merit. Part of the reason for flat wages on the middle and lower rungs of the corporate ladder is the ever increasing cost of health care. Many large companies are in fact spending more money on employees every year– its just not visible in their paychecks, because it gets sucked up to pay for skyrocketing health benefit costs. Our health care costs must be killing us competitively. How do you compete with an overseas manufacturer paying low wages, low or non-existent health care packages, and with few pollution controls. I’m surprised things are not worse than they are.
I use to work in compensation at one of the largest US tech companies, and as a rule of thumb the cost of benefits for an employee (paid out for benefits in addition to their salary) was about 36% of their salary. In Europe is was north of 50%.
We have got to bring health care costs under control. If people with good corporate jobs can’t see the connection between flat wages and decreasing benefits with spiraling health care costs they are delusional. We are in this together. We are responsible for our neighbors. If America can’t put aside selfish self interest and reform the current system, we will sink together– and we will deserve it.
Continuing the “internal” thread regarding health costs, a substantial part of the total cost, and one that is completely off limits for the current administration, are the result of lawsuits that benefit no one except a small group of greedy lawyers.
My solution for lowering health costs:
1) Have a 24 hour period in which anyone who kills a class action suit lawyer, or those who specialize in “ambulance” cases, gets a free pass out of jail.
2) Wait 6 months and then visit the insurance companies that would have benefited from this exit of lawyers. Any company that did not lower their rates in an equal amount to reflect the absence of lawsuits would see their CEOs hanging from a lamp post in the parking lot.
3) Wait 6 months and then pay a visit to the medical suppliers, drug companies, hospitals, and doctors. Repeat the process done with the insurance companies.
lakesider,
The inherent problem with health care which NO ONE is addressing is this: For a large number of Americans, health care is relatively free. Sure, they pay something for their health insurance, but their employer picks up most of that tab. So they have ZERO incentive to shop their health care costs.
No, I’m not talking “life or death” health care costs. I’m talking routine every day costs. By not forcing health care consumers to shop their costs, we leave no incentive in the system to keep them low. Hence our out of control health care costs.
Transferring health care to the government does nothing. This is an inherent problem with third party payer systems.
Consider: What if someone else paid for your grocery bills? Even if you had to pay a $25 deductible every time you went to the grocery store, what would you buy? Would you only buy what you needed, or would you be eating filet mignon and lobster every night? What effect would that have on the grocery store’s costs?
This is what is happening in health care now. The whole argument about people without insurance is a distraction from the central problem.
Toyota strikes back!
http://money.cnn.com/2010/03/02/autos/toyota_incentives/?postversion=2010030310
If 0% financing becomes the auto industry norm, this doesn’t bode well for GM or Chrysler.
Thanks for this piece, Jim, the subject is dear to my heart as a native and resident of SE Michigan. We live and die by the fortunes of the auto industry; it’s a kind of “family business” for most of us.
I’ve noticed that the comments of late kind of get off the subject and devolve into politics/health care/budget issues, like your last post about Donald Kohn’s retirement (Wow! 36 comments). In all of the discussions, I haven’t heard a word about the impact a serious universal health care plan would have on our competitiveness in the world. The Pacific is huge, and it’s very expensive to import goods to the US from Asia. I think the last time you mentioned the rate, Jim, it was about $137,000/day to rent a ship, and it takes close to two weeks, for example, to get machinery from Taiwan to Los Angeles. That plus the tariffs ought to give American producers a leg up, but it’s not enough. American labor costs are high enough to offset that advantage.
But a huge chunk of the American costs are in health insurance. Suppose we take that cost off of the American producer’s plate and put it on the plate of government. Then, of course, raise taxes to cover it. The same costs are still there, but they aren’t part of the producers direct costs, so we’re competitive, or more so anyway. Sure, everybody will grumble about the increased taxes, but at least we’ll be employed, because employers will have less resistance to new hiring. Also, the foreign producers of any imports that still have an economic advantage will have to foot part of the bill; they have to file an 1120, 1065, or 1040 like anybody else who generates a profit in the USA. It’s like a hidden tariff.
This should work like the farm subsidies that overseas growers have been complaining about for years; grain exports sure have helped our exchange situation. It’s sort of an indirect subsidy of American goods and services. But maybe nobody has brought this up because it wouldn’t have the kind of impact I’d expect. Any thoughts?
If you are interested in stories on how executives fleece shareholders…
To see what’s baking at Domino’s (DPZ):
http://www.footnoted.org/my-big-fat-deal/freshly-baked-employment-agreements-at-dominos/
“Service Industries in U.S. Expand More Than Forecast (Update1) ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJsvjoN7tjsw&pos=1