Tuesday, September 22, 2009

Car Sales After Cash-for-Clunkers: On Target for Worst Month

Back on September 16 we reported that Sergio Macchione said September would be a disaster for auto sales, following the end of the Cash for Clunkers program. Edmunds is now saying the same thing in its latest press release.

Automaker stocks such as Ford have being going up lately as August was a record sales month. Edmunds, however, states that the best month of the year for car sales is being quickly followed by what could be the worst month of the year.

"Cash for Clunkers was supposed to prime the pump, but that is a physics concept, and economics is quite different. Demand has dropped off significantly since the program ended."
"Based on the current rate of sales, we anticipate that September's SAAR will be 8.8 million units," stated Edmunds.com Senior Statistician Zhenwei Zhou. "Last year when the bottom was falling out of the economy, September SAAR was 12.5 million, and prior to that it had been over 16 million for years. Many people regard February as the darkest month of the recession, but even then the SAAR was higher, at 9.1 million units."

Also, average car prices are falling as new car buyers choose more efficient vehicles, which are usually smaller, as well as being more cash-conscious (i.e., cash-strapped). Says Edmunds: "transaction prices are falling, and so are dealer profit margins." "The U.S. Labor Department released a report suggesting that Cash for Clunkers triggered a 1.3-percent decline in the new vehicle price index." "The average transaction price on new vehicles purchased in August fell to its lowest level since May 2008,

Ford 6-month chart (+146.4%):

Toyota chart (+29.9%):

We should look at straddles of these companies.

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