Another wave of bad news

Here is the snapshot of one of the biggest news of today:

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Ford, GM, Chrysler end year with big sales drops
Toyota, Honda hit even harder in December than its top two U.S. rivals
By Shawn Langlois, MarketWatch

SAN FRANCISCO (MarketWatch) -- Ford Motor Co., General Motors Co. and Chrysler LLC on Monday all reported steep drops in December U.S. vehicle sales, closing the books on one of the toughest years the domestic auto industry has ever seen.
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Here we go again... Another wave of bad news in the market, looks like it. Most automakers reported that their December sales were down substantially, led by Chrysler which dropped 53%. And again, the drop not only impacted US brands of autos, their Japanese competitors (like Toyota, Honda and Nissan) are also affected (in fact, their sales were hit harder than the Detroit 3).

Now, what does this mean? Is the end of the world coming? Well… yes, it is coming soon, but we don’t know how soon it is. Meanwhile, we should be thankful for two things which prevented the numbers from getting worse for US automakers.

First of all, I believe we should thank the government for providing lifelines to the Detroit 3 (including last minute injection to GMAC, the finance arm of GM) as the savior of the day. Truly, the number could be a lot worse if the government did not provide lifelines to the Detroit 3. It’s not very surprising that GM’s sales jumped in the last week of December 2008 because GM not only lowered its price tags, but it also lowered the standard of credit-worthiness it required to finance the vehicles (Thanks to GMAC lowering their standard of lending after the government provided them the life support of $6 billion).

Second, we should also be thankful for the lower gas prices at the pumps (Yes, I myself had thanked God repeatedly for this). Gas price drop not only encourages the owners of gas-guzzling vehicles to drive their “tanks” back on the roads (I believe that I’ve seen more Hummers on the road in the last month than the previous 6 months combined), but it also discourages prospective buyers from getting a gas-sipper cars. Well, it’s not very surprising at all. When gas prices are this low, buying a gas-sipper won’t save buyers as much money as when the gas was near $5/gallon. Also, with the additional saving from US automakers and the relaxed requirement to finance the vehicle, buyers will have a hard time to resist the temptation from buying vehicles from the Detroit 3.

Don’t get me wrong. Truly, I am not trying to give US automakers bad reviews here. I believe US automakers had recently started to embrace fuel-efficiency as one of their goals, although they’re a bit too late to start. True, GM had Chevy Cobalt which is on-par or even better than Toyota Corolla in its fuel consumption. Ford also had Ford Fusion, a chic car which also consumed less gas than many competitors in its class. The only problem with US automakers’ recent sale event is that the majority of the vehicles they’re pushing to their customers right now are the gas-guzzlers.

A mechanic friend of mine had recently told me that he was told by his customers that they were being offered big trucks like Ford F-150, GM Suburban and others for a very cheap price, it comes with a good financing too. I won’t blame the dealers for trying to entice their customers with the least-sellable vehicles they have in their lots, but I am afraid to say that the worst is yet to come yet. Even with the boost of last minute sales, many US automakers’ dealers still have too many unsold vehicles, and with the new model year arrival, the older vehicles have to go. When GMAC had used up the $6 billion they received from government, the credit crunch will probably return, since not so many lenders are willing to loan money cheaply these days.

I guess until the bank is ready to loan their bail-out money, we may not stop hearing these bad news about the Detroit 3. And God knows when… since those bankers had repeatedly stated that they cannot reveal how they used the money they received from government (So much for a transparency, huh?). Maybe they’ll continue buying smaller banks and competitors or injecting the money to their other asset overseas with their bail-out money (like what Citigroup did).

References:
http://www.marketwatch.com/news/story/Automakers-end-year-big-sales/story.aspx?guid=%7B671DCD3F%2D60EA%2D4E82%2DA7C2%2D3C63C5BC8666%7D
http://www.cnn.com/2008/US/12/22/bailout.accountability/index.html
http://libn.com/blog/2008/12/11/big-banks-go-shopping-with-bailout-money/
http://money.cnn.com/2008/12/29/news/companies/citi_south_korea.reut/index.htm