Automotive analysts are looking at recent sales results and warning that the industry cycle may have peaked.
The strong recovery over the past seven years was a welcome antidote to the economic downturn of 2008-2009, when vehicle demand and production fell off a cliff. It is worth briefly reviewing the events of that time to appreciate the contrast with what is ahead.
The year 2008 started out with a gentle downward drift, although monthly light vehicle sales in the first quarter still ran above a seasonally adjusted annual rate (SAAR) of 15 million units. In the second quarter, we saw sales slide to the mid- to low- 14 million unit range, which still would have been a reasonable cyclical downturn.
Instead, with the start of the economic meltdown in the late summer of 2008, sales plummeted from a 13.69 million unit SAAR in August to a rate of just more than 10 million at the end of the year. Potential new car buyers were swept away during the second half of the year by the overwhelmingly bad news coming from Wall Street and Washington, D.C.
Automotive manufacturers were managing vehicle inventories pretty effectively through the summer months of 2008, but by December, the industry average had swelled to nearly 110 days on hand. Fifty to 65 days’ worth of sales in the distribution pipeline is considered normal.
Some automakers like GM and Chrysler subsequently instituted complete shut-downs, while others resorted to line slow-downs, short work weeks, and other solutions. Light vehicle production in the first half of 2009 was 50-percent below the volumes of the same period a year earlier.
Low vehicle sales and production translate to significant stress for dealers, automakers and the supply base. The rapid industry decline in the latter half of 2008 and continuing in 2009 set the stage for a drastic financial situation, leading to the dramatic Chapter 11 filings of Chrysler and GM and a number of their suppliers.
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Author: Digital Dealer
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