The Next Tire To Drop On The US Economy
THURSDAY, JANUARY 16, 2014
and exuberance along with it, and there were even hopes that sales would soon be where they’d been before the crisis, before the bankruptcies, the plant closures, the job destruction, the bailouts. Through August, it looked like it could happen. August sales hit a seasonally adjusted annual rate (SAAR) of 16.09 million new vehicles (Motor Intelligence), which is close to where sales had been before the crisis.
The auto industry plays an outsized role in the US economy, in manufacturing, services, and retail (accounting for nearly 20% of total retail sales). Booming production and sales have been pushing economic growth when hardly anything else was.
Then came September and October and the government shutdown and the taper or whatever, and the SAAR dropped to just over 15 million vehicles in both months, and unsold inventories piled up. But it wasn’t time to get nervous. It would be just a blip. Sure enough, in November, sales jumped to a rate of 16.4 million units, and everyone breathed a sigh of relief: there’d be no slowdown; the party would go on.
Then the December debacle happened. Inventories were already high when sales dropped to a SAAR of 15.4 million vehicles. It brought actual sales for the year down to 15.6 million units. This time they blamed the snowstorms and the polar vortex and whatever, and true, no one in his or her right mind goes out to buy a car during a snow storm, but snowstorms happen every winter, and the weather was beautiful in other parts of the country, including much of the West Coast.
But never mind. The Detroit Auto Show is happening, and exuberance is boiling over. GM promised to pay a dividend. Tesla goosed its stock price with another one of its announcements. Ford stirred up excitement with visions of an aluminum-framed F-150. And gleaming models were on display, and industry insiders were cranking out hype at 80 mph.
Then AutoNation CEO Mike Jackson poured cold water on it all. He should know. He runs the largest chain of dealerships in the country, an empire of 225 stores that sold 296,419 new retail units in 2013, about 2.24% of total US retail sales. He warned about the out-of-whack inventories.
Dealers were sitting on $100 billion in new vehicles – which automakers had already recognized as sales on their books. Channel stuffing. There were 3.45 million units waiting to be sold. While sixty days’ supply would be “an accepted inventory figure,” as he said, current levels are far above it. The figures were even worse with fleet sales taken out of the equation. He put his finger where it hurts, where it has always hurt.