Just to keep things in perspective. News reports are gushing about auto sales "plummeting." For the 12 months ended January, sales declined 37%. That's exactly the same as the decline over the 12 months ended December. From December '08 to January '09, sales fell about 7% at a seasonally adjusted rate. As I've said before, the biggest declines in auto sales are water well under the bridge, since they happened many months ago. We're now getting down to levels that are not sustainable for very much longer, if history is any guide.UPDATE: Brian Wesbury notes the following, which supports my view that auto sales won't remain at such low levels for very much longer: "The replacement rate for autos (how long it would take to replace all the autos now on the road, given the current pace of sales) is now at 25 years, versus a long-term average of about 13 years and 16.3 years at the worst of the 1981-82 recession. A 25 year replacement rate is unsustainably long and we expect auto sales to increase in the months ahead."
This seems to fall in line with comments I read on 1/26/09 from Brian Wesbury, Chief Economist at First Trust "Figures from the Federal Highway Administration suggest there are now about 240 million light vehicles in the US, including those owned by individuals and businesses. In December, light vehicles sold at 10.3 million annual rate. At that pace, it would take 23.4 years to replace all the cars and trucks now on the road in the US Normally, the replacement rate for auto sales is about 13 years, and even at the bottom of the recession in 1981-82 it was only 16.3 years.
ReplyDeleteHe also made a interesting real estate replacement analogy in his commentary on that same date. Worth the read!
He closes by stating "None of this means the US is on the verge of an immediate boom. However, it does mean that we are already at, or very close to, an economic bottom. That certainly seems plausible.
NOW...if we could just put a gag in the media mouths the average American might at least peak out of their foxhole...personally it does not seem all that ugly to me out here in AZ! (but I dropped my newspaper subscrition a long time ago)
zumbador,
ReplyDeleteWould greatly appreciate if you could provide a link to the Brain Wesbury comments if at all possible. Thx.
Brian Wesbury is at First Trust. Use this link:
ReplyDeletehttp://www.ftportfolios.com/retail/research/economicresearch.aspx
Look under the Monday Morning Outlook for the 2/2 comments.
I agree that we "may" have hit the bottom but I disagree about using the past to predict the future demand for products such as automobiles moving forward. This could take 10 years to work out and with global auto production out pacing demand by some 30 million units, there will be reckoning days for many auto companies...if we let the market do what is is supposed to do...creative destruction.
ReplyDeleteWe are in a new paradigm but nobody wants to admit it. The past was fuelled by cheap credit and a bogus asset backed credit market. Those days are gone, therefore consumption will never look like the past unless we have another bubble.
We should get used to auto sales in the 10-12mm range and plan for an industry that can support those numbers profitably. The autos can only dream of an industry that once shipped 16mm units.
This reminds me of NASDAQ 5000. How long do you think it will take to get back to those levels? I think we are asking the wrong question or looking at this using rear view mirrors.
It may not be that "bad" but it won't be that good for another 10 to 20 years...
Tragically (for people taking Wesbury's investment advice) he as been persistently wrong for years. One can only conclude that he is taking money from corporate clients to sell equities at inflated prices. Here is what I wrote in response to his relevant column. It is admittedly snarky, but nevertheless, I don't regret writing it at all:
ReplyDelete"Your're right, things aren't frozen in time. Expect the bloated inventory of homes to increase by 2million over the next year, as more houses hit the foreclosure block, further driving down prices. And now rents are starting to decline not just in New York, California or Florida, but nationally, as more and more people move in with relatives, rent rooms out to make end meet, or simply become homeless, causing the vacancy rates to soar. And what about the auto market? Have you noticed the enourmous spike in reposessions, especially of luxury models in the tonier neighborhoods? They're finding their way to the auction block, and it's a major reason why used car prices plunged at an annual rate of 20% in the fourth quarter. Things aren't frozen in time. But they sure are snowballing."