December May Wipe Out US Car Company Progress, Cast Shadow On 2008

It looks like December will be another ghastly month for US car companies. Based on a survey of auto analysts by Bloomberg, units moved by the old "Big Three" could drop 7% or so in the last month of the year. That would bring total vehicle sales in the American market to 16.1 million for 2007, the worst year since 1998.

The fall-off would compromise most of the savings that Detroit has fought so hard to get. GM (GM) claims that it has knocked $9 billion a year out of its expenses. Deals cut with the UAW will save GM, Ford, and Chrysler billions more by moving health-care liabilities to a new fund controlled by the union.

Many industry observers believe that high fuel prices and a poor economy could knock about million units off of total sales in 2008 and they they may actually fall below 15 million. At $25,000 a car that would take $26 billion in revenue out of the domestic car market.

GM now has about 25% of the auto market in the US and Ford has a little over 15%. That means that the two companies could lose well over $10 billion in revenue in a market which moves only 15 million cars. If more market share is lost to Japanese companies like Toyota (TM) and Honda (HMC), the numbers get even worse.

GM’s and Ford shares are near multi-year lows, and a bad 2008 could make that much, much worse.

Douglas A. McIntyre