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Friday, June 20, 2008


from bad to worse

late last year i blurbed on chrysler's unsaleable pier loans. the interest in the company's LBO debt was clearly low. but few foresaw what is becoming of the american auto industry in general as this credit contraction manifests as an all-out consumer-led recession -- or worse.

When Chrysler announced plans to cut 12,000 jobs in November -- on top of 13,000 over three years -- executives were assuming Americans would buy fewer vehicles in 2008 than in any year in a decade, only about 15.5 million. Nardelli said that "conservative estimate" was pretty close for the first three months of the year.

But sales were 7% to 8% below that rate in April and May. And so far in June, he said, J.D. Power and Associates and Citigroup are seeing a sales pace that is almost 20% lower -- only 12.5 million vehicles per year.

"This is the lowest sales level in 16 years and indicates a significant and continued softening of the U.S. automotive market," Nardelli wrote.

... U.S. car and truck sales are down 8.4% so far this year; sales of Chrysler's three brands are down 19.3%.

... Cole added that an annual rate of 12.5 million in June is a major decline. "That's really falling off the cliff. That's going to mean some more cuts," Cole said.

"That is going to hit cash very hard through the industry," he added. "Production cuts, employee cuts -- I think it's going to depend upon the company. That's tough stuff."

... If J.D. Power's forecast for June -- an annualized rate of 12.5 million sales -- continues for long, Erich Merkle of IRN Inc. said, it would be "Armageddon. Doomsday."

"I don't think there is anyone out there prepared for 12.5" million annual U.S. sales, he said. "I know it is only one month, but still that would show some signs that there is some real deterioration in the market, that would mean the economy is really slowing down significantly."

today, per calculated risk, ford is warning on sales as well. the already-overleveraged american consumer is faced with plummeting home values and troubled banks killing off mortgage equity withdrawal, limiting car sales overall -- not to mention the sharp rise in unemployment indicating that job losses are mounting. for american carmakers, profitability is concentrated in fuel-inefficient trucks and SUVs. sales of these particularly have been poisoned by $4/gallon gas.

"Armageddon. Doomsday. I don't think there is anyone out there prepared for 12.5"

the economy could be headed for some honest-to-god fireworks in the second half, and it's an open question as to whether any of the big three american carmakers will see the other side.

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