Are the Car Makers Right to Call Bottom to the Market?

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Ferrous Metals, Supply & Demand

Last week several pieces of automotive data came out suggesting that the rate of decline has started to slow. One article actually suggests that the three biggest car makers have called bottom to the market. To wit, according to this story from Reuters combined with the WSJ article above:

  • Ford reported [only] a 10.9% decline in sales with 60 days of inventory
  • Sales for the industry on an annualized basis close to 10m units
  • Ford out-sold Toyota 154,873 to 131,654 vehicles for the month of June according to the Wall Street Journal article
  • Total new vehicle sales fell by 28% in June (the smallest decline yet this year), according to the Wall Street Journal article

Let’s tally up the Ëœgood news indicators.’ First, the rate of decline has started to slow which eventually leads to a bottom. According to the Journal article, ¦the industry expects sales to get a boost at the end of July as consumers start to take advantage of the government’s cash for clunkers program, which provides incentives for consumers to trade in old cars for new models that get higher gas mileage. (We’ll comment on this program momentarily). Next, the WSJ article cites several other positive economic indicators including house price declines slowing and higher consumer confidence. In addition, the latest Institute of Supply Management’s report suggests the economy has moved in the right direction in terms of the overall PMI Index up from 42.8 to 44.8, increased production and slower supplier deliveries (suggesting lead times are stretching due to demand).

Not to rain on the parade but we’d temper some of the automotive sector enthusiasm for several reasons. First, consumer confidence took a pretty significant drop in June from May moving from 54.8 to 49.3. Secondly, one key element of the ISM report that has turned negative again is new orders, which have declined. Finally, we don’t think the Cash for Clunker’s program will result in much new demand, though it is scheduled to roll out later this month.

A reader recently informed us that steel use in the automotive sector only represents some 12% of overall demand (unlike the 25% it used to represent several years ago) By studying the automotive sector trends closely we can begin to think about where the steel markets are headed. I hope I’m wrong but I think we have some more bottom surfing to do before these key markets start to turn in a positive direction.

–Lisa Reisman

Comments (2)

  1. Joe says:

    As much as I don’t want to, I have to agree with you. I also think that the worst is still to come, sadly.

  2. jhenry says:

    I beleive this new legislation is a big win for consumers who is ready to buy a new car with fuel efficient models

    Jhenry

    http://www.cashforclunkersfacts.info
    http://www.cashforclunkersfacts.info

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