Thursday, July 8, 2010

U.S. Auto Sales on Hold?

(Export Development Canada – Peter G. Hall)

America’s obsession with vehicles was shaken by the onset of recession. Firms that were the icons of US auto production for multiple generations were suddenly on the brink of extinction. Hotly contested government bailouts bought them time, and sales rebounded handily – a great relief for Canadian auto sector exporters. But in June, U.S. vehicle sales dipped again. Is this cause for concern?

When it hit, the correction in this sector was overdue. Vehicle sales, boosted by rock-bottom interest rates and overdone incentives, averaged 17 million units annually from 1999 to 2007. In the latter stages of this binge, there were roughly 5% more vehicles on U.S. roads than there were people of eligible driving age. The sobering reality-check when sales tumbled to 9M units in the first quarter of 2009 was that insiders knew the oversold market could stay at these new, low levels for a long time. Fortunately, there was a partial rebound, but sales have remained stuck at a sub-par 11 million units in recent months. The drop in June sales kept it in this range, a disappointment for recovery hopefuls.

Some might pre-conclude that this is the new reality for the U.S. market – that consumer indebtedness, ageing of the population, fiscal rebalancing and such will keep sales suppressed for a long time. The arguments all make sense, but sustainable sales levels are still thought to be in the 15-16-million-unit range. Even a recovery that doesn’t quite hit that mark still has a long way to grow from today’s pace.

So why are sales still stuck in the mud? Read more or watch the video here.