Credit Suisse: Detroit Factory Start-Up Explained, Doldrums Continue

You may have been wondering—as I have—why Chrysler Ford and GM are restarting production, given that sales are down by over 30 percent. The answer’s buried in a recent report from notre amis a Credit Suisse. To wit: “Much has been made over the last several weeks about the production increase that should take place from Q2 to Q3. Indeed we expect output to increase more than 50% sequentially at the Big 3, and about 27% for the industry. But most of this is being driven by underbuild relative to demand in Q2, such that inventories should be below normal by June 30.” I know what you’re thinking: has it really come to the point where I understand/care about this kind of Inside Baseball stuff? If the answer is [a secret] yes, welcome [again] to TTAC’s The Best and Brightest! Which also means you’ll be interested in the rest of the report . . .

• Our Platform Monitor points to brutal quarter-to-date declines in the production of platforms that are too numerous to list here. No platforms that we track are showing higher output in the April – May period, while more than half of those platforms are down more than 50%. To put this into perspective, the Honda Accord/TL platform is performing relatively well, with production down 56% year-to-year.

• We think the most important thing for automotive investors to keep in mind is that demand has not yet recovered. While a SAAR of 9.9 million in May was a little better than our 9.3 – 9.6 million forecast, we’re still running below 10 million units.

• And the verdict is still out on “cash for clunkers” legislation that’s likely to become law soon. The effect on demand is likely to be lackluster, in our view, given the likely limited number of people driving “clunkers” who can either afford a new vehicle or qualify for a new car loan.

• The automakers are likely to run incentive programs that match or are otherwise tied to the scrap incentive, and these programs will likely increase dealer traffic. But like any incentive program, the demand created will be pull-ahead demand and, all else equal, we’re likely to see a swift payback.

• While most of the factors on our Consumer Watch Scorecard showed month-to-month improvement in the latest data, the overall implications for auto demand are still overwhelmingly negative. The average auto loan rate is the only factor that registers favorably on our Scorecard.