Pent-Up Demand AWOL: Less Than 13 Million Sales Expected For This Year

by Bertel Schmitt

September 11th, 2011 9:00 AM

U.S. auto sales will probably come in lower than 13 million this year, Ford’s CFO Lewis Booth told Bloomberg. That’s below the low end of Ford’s estimate.

According to Bloomberg, “Ford had forecast industry wide 2011 sales of 13 million to 13.5 million vehicles, including medium- and heavy-duty trucks, in its home market.” Booth is not alone with his prediction that we will see less than that. Analysts are cutting their forecasts. Last month, the average estimate of 18 analysts surveyed by Bloomberg was 12.7 million.

As for the fabled pent-up demand, it seems to be in hiding.

“We see signs of pent-up demand,” Booth said at a UBS conference in London. “What it’s going to take for that pent-up demand to emerge is some confidence in what the future will look like.” Ford anticipated a modest U.S. recovery, “but we didn’t expect it to be quite as slow as it’s been.”

#BertelSchmitt #Booth #Demand #Ford #Pent-up #Sales

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11 of 73 comments

Conslaw on Sep 11, 2011

The car bailout was insignificant in the big picture of government spending, but it was very significant to the people, companies and communities directly affected. In the big picture, I'd say the number one factor in economic problems is a mortgage securitization market that was flawed to the core. Separating the servicing of mortgage loans from the underwriting of the loans created an industry that systematically underestimated mortgage risks while inflating home prices. At the same time, banks didn't even protect themselves by properly executing paperwork on their mortgages. Diverging objectives between tiers of securitized mortgage interests is making it hard to do mortgage modifications that are objectively good for the borrowers the communities and even the majority of mortgage investors. Finally a completely messed up mortgage assignment system (MERS) has made it difficult to determine who really has a valid mortgage. Our major banks have been subsidized to the tune of hundreds of billions of dollars, and still many of them are on the verge of failure (BofA cough!). So many people rag on the autoworkers in this forum, but if the autoworkers, union and otherwise, built cars as poorly as the bankers set up and implemented the mortgage securitization system, the average new car wouldn't last 1,000 miles.

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- Robert.Walter on Sep 11, 2011
  
  +1. Esp the last paragaph.
  
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- AJ on Sep 11, 2011
  
  Don't forget the government polices designed to increase homeownership through government mandates about lending. That did it's share to to make a lot of bad quality loans and inflate the real estate market as about anyone could qualify for a loan. No credit, no downpayment, no problem! I was working with Fannie back in the day (who was handing out marketing cash I might add) to promote a lot of those programs to people that had no business owning a home. I personally knew someone that got a 105% loan right out of college, took that extra cash, paid off their student loans, then two years later stuck the bank with the house after not making a mortgage payment for at least six months. Then went and bought a new car! Whether it's buying a house or a car, I'm all for stricter lending. In fact instead of replacing one of my three cars as I'd typically do by now, I just bought a rental house by the old, tougher lending requirements. And the renter will not go six months without making a rent payment, that is for sure.
  
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- Jacob_coulter on Sep 11, 2011
  
  One excuse I get so tired of is "But the bankers got a bailout, so I deserve..." whatever stupid idea comes down the pike (like Cash for Clunkers, auto union bailouts, home mortgage bailouts, solar panel bail outs, etc.) Two wrongs don't make a right, I'm against bailouts for any private industry (banks included) but ALL the major banks paid ALL their TARP funds WITH interest. http://money.cnn.com/2009/06/09/news/companies/banks_tarp/ You can't say the same about the "loans" (read Union Graft) that were given to GM and Chrysler that the American taxpayer will never see again. Not only did GM get a taxpayer bailout, they basically get to operate tax free for at least the next decade since they took tens of billions of dollars in tax deductions for their pseudo-bankruptcy. http://online.wsj.com/article/SB10001424052748704462704575590642149103202.html Crony Capitalism at it's finest.
  
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- Scoutdude on Sep 11, 2011
  
  @AJ The private money portion of the lending industry was much more to blame than Fannie and Freddie. They were the ones doing the bundling and manipulating to sell worthless loans as grade A investments. Don't be so sure about never having a renter go six months w/o paying rent. Depending on your states regulations it can take months to process an eviction if the renter wants to fight it. In pretty much every jurisdiction there is usually gov't employed or partially financed personnel to help them do just that w/o costing the dead beat tenant a penny. Then you may find you've got quite a mess to repair when they damage the place in retaliation. So by the time everything is said and done you could be going w/o rent for longer than 6 months. I've been in the rental real estate game for 15+ years. Mine were all purchased back in the day when strict 20% down, proof of adequate reserves, ect was the name of the game in investment property financing. BTW having just refinanced some of my properties the standards are still not as strict as they were when I got in the game. Edit: That's not to say that the renter will be in there for that 6 months but by the time the place is rented again and you factor in the legal fees you'll be out 6 months or more rent pretty easily if the dead beat works the system for all it's worth. Thankfully I haven't been there in a long time. The last renter that lost his job just up and left in the middle night with only the possessions he could cram in a small U-haul truck according to the neighboor who was awakened by all the banging of loading the truck.
  
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- Highdesertcat on Sep 11, 2011
  
  @jacob_coulter I was against the bailouts for anyone and everyone. Failed businesses should fold and not be nationalized and a burden on society. But having said that, I also believe that there is a much better chance of getting all the tax payer bail out money back from banks and investment houses whose functions it is to MAKE money through investments and financial instruments, than it is to hope to get it back from defunct auto manufacturers whose function it is to SELL their products to an unwilling buyer. We have already gotten back a great deal of money from the financial industry that was bailed out, but we're still waiting on the US auto industry to repay some real money. Unused bail out bucks do not count.
  
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NeonNoodle on Sep 12, 2011

Do we do polls here? This would be an interesting one to see the results of. It could go something like this: A) I never bought new cars. Ever. B) I have always bought new cars but kept them for a long time (6 to 10 years or even longer). C) I used to purchase a new car every 3 to 5 years (or sooner) and still do. D) I used to purchase a new car every 3 to 5 years (or sooner), but now have stopped that practice based on the current economic situation. I, myself would check option "D", so count me in as part of the reason new car sales are lower. I actually spent the better part of a decade and a half buying (or leasing) a new car every 1 to 3 years. Those days are over for me and my two daily drivers are a '91 and '96, and I plan to use them till they're dead.

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- Nickeled&dimed on Sep 12, 2011
  
  A) I've only bought three cars ever. 1- 1987 Volvo 740 Turbo, $500 @ 256K miles 2- 2000 Subaru Legacy, $5000 @ 100K miles 3- 2005 Toyota Prius, $8500 @ 100K miles Drove the Volvo over 30K miles, still driving the Subaru, the Prius is a new purchase, the wife's car. I'm carrying on a family tradition - the only new car my parents ever bought was a 1981 Subaru GL, which they kept for 14 years & 150K miles The used car market right now is awful, though, and I may go new for the next purchase, if the used market continues to be outrageous and I can limp the Subaru until next fall.
  
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Syke on Sep 12, 2011

The new reality in car buying, I believe, is people like me: People who save in advance for that new (or newer used) car, when they buy they pay cash, and immediately start re-saving against the time when that car is going to need to be replaced. I'm currently in the final stages of pre-buying. Once I get the savings account in the $30-35k level, I've got $18-20k for the purchase of a new car (and I'm really in the mood for a new one this time around - been buying only used since 2000), and I still have a good cushion against emergencies. Once the car is bought (probably winter/spring 2012) it's time to start restocking the bank account against the inevitable next purchase. Happily, I love 'B' class cars, insist on manual transmissions, so my proposed budget leaves me some reasonably desirable alternatives (Fiesta, Mazda2, Fit, Fiat 500, and I'm seriously curious about the Sonic). I've had to laugh at the financial twistings and turnings going on over the past three years, because the above is how I've always bought cars, motorcycles, electronics . . . . . . well, everything but my house. And the mortgage was paid off a year and a half ago. Other than the mortgage, I can't remember when I've paid interest on anything. And I intend to keep it that way. Said attitude worked for my father just fine, I can't see why it won't work for me. And I'm not lacking for entertainment (the garage is currently a Porsche, four motorcycles and 17 bicycles) by being too parsimonious.

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Ronin on Sep 12, 2011

Thirty years ago you financed a new car for 24 to 36 months, and put 10 to 20% down. No leasing. You got a new pickup truck because you couldn't afford a new car (pickups were cheaper!). You got a Toyota or Datsun because they were cheaper. I submit that those terms may just be the norm. The soaring car prices in recent years have paralleled working couples and the social acceptance of huge debt. That bubble popped. Cars are now nakedly expensive, with ridiculously high finance terms. This may well be the new normal. Car prices will simply have to come down. Manufacturers putting cash on the hood is not an incentive- it is the true market price of the item. A year from now we'll still be making excuses that as soon as operations are back from tsunami damage, all will be good. Three years ago the used house organization spokespeople were yapping about pent-up demand, how houses will soar again by 2010. The fake 'pent-up' demand call has reappeared. It may appease shareholders, but only for so long.

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- Jhott997 on Sep 13, 2011
  
  you are correct Ronin. Cars are TOO DAMN EXPENSIVE. Their manufacturer is much to capital intensive! It is an industry of the past that is at the beginning of a massive correction. From a consumer perspective, the credit crazed 80's 90's 2000's are over. We are adjusting the new reality. It will take time and will continue to be painful. Those vested in the "old ways" will deny, scream bloody murder, claim the recovery is just around the corner but it is not. There is a long period of de-leveraging debt and adjusting life-styles to the new reality. Just remember: death, in life and in corporations, is part of life. Don't be afraid to let go of the past and look to the future. This is how we grow and learn. This, is why I believe GM and Chrysler should have been "allowed" to liquidate. They died. All the "bankruptcy" did was delay the inevitable and, arguably, hurt Ford and Toyota in the long run.
  
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