Auto sales for August came out yesterday, and the news was not good.
In the U.S., Ford’s sales dropped 13% in August 2004 compared to August 2003. GM’s sales were down 14%, and DaimlerChrysler’s sales were down 5.7%. Most surprising, for the first time in 16 months, sales also fell for Toyota.
Foreign country sales were soft too. Ford and GM vehicle sales plunged 11.9% and 11.4%, respectively, in Canada in August 2004 from August 2003.
On the heels of these weaker auto sales announcements, both Ford and GM said they would cut fourth-quarter North American production. Ford will cut production by 7.8%, while GM will follow suit with a 6.9% cut.
Most analysts are blaming higher gasoline prices for the drop in auto sales. My question: If higher gas prices were the real concern, wouldn’t consumers just move towards smaller, more fuel-efficient cars? Well, that’s not what happened in August. Sales were down across the board for all vehicle types.
No, I don’t believe higher oil prices caused consumer demand for autos to soften. In fact, consumers have never seen such generous car manufacturer incentives, which should have spurred sales higher, not lower.
As I’ve written about extensively in the past, consumers are starting to reduce their spending. They’ve exhausted their savings, they’ve used up all their credit, and have no borrowing room left on home equity or personal lines of credit.
Yesterday, the U.S. Institute for Supply Management’s purchasing index fell to 59 after having been consistently above 60 for nine months. Consumer demand for goods and services is declining, and the U.S. factory sector is cooling.
And, as I complete today’s commentary, the U.S. Labor Department just announced initial jobless claims rose 19,000 last week to 362,000. This is the highest level since April 10, 2004.
The only good news this week has been in the construction sector. The U.S. Department of Commerce has reported construction spending jumped a seasonally adjusted 0.4% in August. The construction sector is really the last leg left standing in this economy. What will happen when consumers start reducing their new-home purchases?