Cars Sales Expected to Plunge

Auto sales now are expected to be well below estimates made earlier this year. They seemed to have recovered in the first half from the sickeningly low rates of 2008 and 2009. But that recovery is now less robust. Car sales may not be a perfect reflection of the current economic situation, but they are close. Twelve million cars and light trucks were sold in the U.S. last year.

J.D. Power, the auto trend research firm, lowered it estimates for U.S. sales this year by 300,000 to 12.6 million. It also cut its forecast for 2012 by 600,000 to 14.1 million. The 2012 number is still much too high, if current economic problems persist.

Car company finances have only just begun to improve from the period in which General Motors (NYSE: GM) and Chrysler filed Chapter 11. Most auto manufacturers have cut costs enough to make money at the 12 million per annum car sales level. But that does not mean the industry will be healthy if sales slide. The stock market knows that. GM shares are near an all-time low since the company went public. Ford’s (NYSE: F) shares, until recently the envy of the industry, reached $19 earlier this year, up from under $2 in February 2009. The stock is barely worth $10 today.

There has always been powerful evidence that a layoff at an American car company causes three job cuts at industries related to those companies. That domino effect was part of  the restructuring of the auto industry in 2008. Many of the more than one million jobs lost were in Michigan, Ohio and other Midwest states. Car firms may be pressed to keep employment numbers where they are now, if total U.S. sales fall below 12 million this year and are very little better next year.

Car sales are an important economic indicator. They are also an indication of job growth and contraction. Right now, it appears that both the economy and employment in the industry are headed downward.

Douglas A. McIntyre