Automotive
MONTHLY
Sideways Is Not Good Enough;
US Sales to Stabilize at 12.0M in 2009
■
Light vehicle sales tumbled 18% in 2008, to 13.2 million units from 16.1
million in 2007, with the selling rate deteriorating significantly in the second
half of the year, finishing with a barely-breathing 10.3 million SAAR in Q4.
■
Sadly, it looks like 2009 will be even worse than 2008. Our latest forecast
for 2009 US light vehicle sales is a shade under 12.0 million units, which is
down from our earlier forecast of 13.0 million, and down another 9% versus
13.2 million in 2008.
■
North American light vehicle production in this scenario should be in the
range of 10.6 million units, down about 13% vs. 12.2 million in 2008,
reflecting the sequential decline in sales, as well as an oversupply of
vehicles remaining on dealer lots at year end. The year-to-year drop in
production should be even more pronounced for the Big 3 (about 19%).
■
If there is any good news here, it is that the shape of things should be better
in 2009 than in 2008. In other words, we expect the exit rate of sales in
2009 to be better than the entry rate. The exact opposite was true for 2008.
■
But settling in at a 12.0 million sales pace in 2009, even after running in the
low-10s in the fourth quarter, will not be enough to invigorate the stocks, in
our view.
■
Indeed, the Big 3 and many suppliers will still be burning cash in a 12-
million market, especially considering that the drop in production will be
more pronounced than the decline in sales.
■
Revisiting our sector thesis from last year, we note that auto stocks –
particularly the OEMs, and in this case we would include Big 3-dependent
suppliers – generally do not work during or after recessions until US vehicle
sales start to trend meaningfully higher. And going sideways from 13.2 to
12.0 (even with a 10.3m quarter in between) is not going to cut it, in our
view.
■
The suppliers, on the other hand, can work (sometimes, as was the case in
the early 1990s) if we just find a bottom. With that in mind, we would keep
an eye on quality names like BWA or JCI; although we would prefer to buy
both at lower prices. Europe-driven disappointments may provide such an
opportunity in the first quarter.
■
We include in this report a detailed review of 2008 sales (how did it get so
bad), and our outlook for 2009, 2010, and 2011.

We maintain an Underweight stance on the group.

Table of contents
Investment Summary 3
Report Highlights 5
2008 Postmortem 7
The U-Rate – Confidence Disconnect 8
Credit Availability 10
2009 Demand Outlook 12
Longer Term Demand Outlook 14
Structural (Trend) Demand 15
Sales and Production Forecasts 21
Market Share 23
Production by Car and Truck 25
December Inventory 26
Car and Truck Inventories by Automaker 26
Trouble Spots 29
Foreign Brand Update 30
Forecasting March Inventory 31
Appendix 32