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

Robert Farago
by Robert Farago

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 . . .


• And in the meantime the [automotive] stocks are going to have to endure another brutal earnings season, with second quarter industry output that’s likely to be down about 40%-45% year-to-year. That’s better than the 52% decline in the first quarter, but Big 3 output should be down about 55% (just as bad as Q1).

• 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.

Robert Farago
Robert Farago

More by Robert Farago

Comments
Join the conversation
2 of 4 comments
  • John Horner John Horner on Jun 25, 2009

    Many people scoffed back in January when I said that the new normal selling rate was probably 10 to 11 million units per year. It looks like reality is coming in just a touch under that pessimistic prediction. Even so, inventory for many popular vehicles is getting very thin on the ground by my personal observations at local dealers, especially since so many dealers are toes up. Lots of factories have been completely shut down for many months now. Demand is down, but it hasn't gone to zero. But hey, if you just have to have a Saturn Astra there are plenty of those around, including "new" 2008 models.

  • Anonymous Anonymous on Jun 25, 2009
    The automakers are likely to run incentive programs that match or are otherwise tied to the scrap incentive, That settles it. I now know the perfect car for the teenager going off to college. Between the cash for clunkers money from the government and an additional $1,000 in rebates from government motors, your budding young college student can have a Daewoo Aveo for $5,000 or less of your money and $5,000+ of my money. Ain't it a great country. I anxiously await a thank you card in the mail next month and a Father's Day card next year.
  • ToolGuy First picture: I realize that opinions vary on the height of modern trucks, but that entry door on the building is 80 inches tall and hits just below the headlights. Does anyone really believe this is reasonable?Second picture: I do not believe that is a good parking spot to be able to access the bed storage. More specifically, how do you plan to unload topsoil with the truck parked like that? Maybe you kids are taller than me.
  • ToolGuy The other day I attempted to check the engine oil in one of my old embarrassing vehicles and I guess the red shop towel I used wasn't genuine Snap-on (lots of counterfeits floating around) plus my driveway isn't completely level and long story short, the engine seized 3 minutes later.No more used cars for me, and nothing but dealer service from here on in (the journalists were right).
  • Doughboy Wow, Merc knocks it out of the park with their naming convention… again. /s
  • Doughboy I’ve seen car bras before, but never car beards. ZZ Top would be proud.
  • Bkojote Allright, actual person who knows trucks here, the article gets it a bit wrong.First off, the Maverick is not at all comparable to a Tacoma just because they're both Hybrids. Or lemme be blunt, the butch-est non-hybrid Maverick Tremor is suitable for 2/10 difficulty trails, a Trailhunter is for about 5/10 or maybe 6/10, just about the upper end of any stock vehicle you're buying from the factory. Aside from a Sasquatch Bronco or Rubicon Jeep Wrangler you're looking at something you're towing back if you want more capability (or perhaps something you /wish/ you were towing back.)Now, where the real world difference should play out is on the trail, where a lot of low speed crawling usually saps efficiency, especially when loaded to the gills. Real world MPG from a 4Runner is about 12-13mpg, So if this loaded-with-overlander-catalog Trailhunter is still pulling in the 20's - or even 18-19, that's a massive improvement.
Next