Rebel Traders – Analysis Without The Hype

Even with the the last minute surge in December of buyers taking advantage of numerous incentive programs, it was still not enough to prevent another record year of sales declines. The year 2009 saw an industry wide decline of 21.2% from the 2008 year and the worst total sales since 1982.

Everybody thought that 2008 was the bottom for auto sales, in 2008 record declines were met with hopes and renewed vigor that 2009 would see a stabilization and return to growth. Unfortunately those hopes were dashed today as the final tally of auto sales figures were added up and 2009 was even worse than 2008.

For General Motors, automobile sales in 2009 were 30% lower than in 2008. Chrysler sales were down 36% compared to the prior year which was also the worst sales performance for Chrysler since 1962.

At Ford it was a little bit better, but year over year sales figures still put the auto giant at lower sales than in 2008 with a drop of 15% from last year.

Had it not been for the Government ‘Cash for Clunkers’ program, sales for 2009 would have been significantly worse. Now that the program has ended, the real tell of how well the auto makers are able to do will come through. General Motors is predicting that 2010 will bring an industry sales figure of 11 to 12 million vehicles. To that I say “good luck’ at meeting those figures, that is unless another Government handout is coming.

In 2009 the industry wide sales figures came in at 10.4 million units, down 21.2% from sales in 2008.

Who did do well in 2009? Hyundai and Subaru reported 8% and 10% gains respectively as their vehicles were among the most popular during the ‘Cash for Clunkers’ program.

With the ‘Cash for Clunkers’ program now over, reports of delinquencies still rising, and the unemployment situation my estimate for the 2010 sales figures are for a year end tally of 9.5 to 10.5 million units, much lower than forecast by General Motors and other economists.

The maker of auto seats and other electronics for vehicles announced they plan to file for chapter 11 protection ’shortly’.

A filing would add evidence that even the sector’s largest suppliers are feeling the squeeze from auto plant shutdowns, the continued slump in demand for products and tight credit markets. Bankruptcies threaten to increase product-flow disruptions that could shut assembly plants and drain cash from auto makers who may be tapped to provide bankruptcy financing.

Lear received commitments from a syndicate of secured lenders, led by J.P. Morgan and Citigroup Inc., for $500 million in new debtor-in-possession financing. That financing will convert into exit financing with a three-year term upon Lear’s emergence from bankruptcy protection.

The company’s units outside the U.S. and Canada won’t be part of the bankruptcy filing. It said those operations are well-capitalized, well-positioned and have a strong backlog of new business.

Lear would be the eighth major supplier to seek Chapter 11 since 2005 and the third parts maker to file in the past month. Visteon Corp. and Metaldyne Corp. entered bankruptcy May 28

I had thought that Toyota would be able to hold on to their higher tier ratings, but tonight Fitch Ratings Service issued a blow to the Japanese auto giant.

Fitch cuts long-term foreign and local currency issuer default ratings and senior unsecured debt ratings by 2 notches to A+ from AA; Outlook Negative

At the same time, the agency has affirmed Toyota’’s Short-term foreign and local currency IDRs at ”F1+”. According to Fitch, fundamentals in the automobile industry are likely to remain weak in the medium-term, making it difficult for automakers to regain levels of profitability reached in the easy-credit-fuelled boom which came to an end in Q408.

Although Toyota remains the strongest player in the industry, its recent operating performance, strategic decision-making and management reaction to the crisis have been less impressive than its peers; in contrast, Honda (”A”/Negative) has benefited from its focus on smaller cars and motorcycles while taking swifter action to cut costs, leading the agency to assess that the difference in credit quality between the two companies has lessened.

The agency believes it may take several years for Toyota to approach previous levels of profitability, unless it takes swift actions to reduce costs and restructure its production facilities and product portfolio.

Fitch considers that the auto industry can no longer support a rating in the ”AA” category.

Additional risks include the potential disruption to the supply chain in the US following the bankruptcy of GM/Chrysler.