February 01, 2007
GM and Ford down, Toyota and Nissan up
Stop me if you think you've heard this one before.
GM's auto sales last month were down 17% from the previous year, while Ford's fell 19%. The latter was enough to move the used-to-be-number-two automaker into fourth place for the U.S. market in January. Toyota, on the other hand, was up 10% and Nissan up 9%.
Things are perhaps not quite as bleak as these year-over-year comparisons might lead one to believe, since last January the automakers were enjoying a temporary rebound from the fall 2005 debacle. January 2007 domestic car sales were down only modestly from January 2005 or January 2004 levels. Domestic light truck sales, which did not enjoy the January 2006 bump, show a more measured inexorable decline over the four consecutive Januarys:
Although the January data don't represent the kind of precipitous cyclical decline that the initial sales figures might lead one to infer, they still could spell trouble for the economy over the next few quarters, not to mention the long-run implications of the unmistakable trend away from domestic manufacturers. Both GM and Chrysler are planning significant production cuts during the current quarter. That's not exactly a welcome development in an economy already testing the theory that America is diverse enough to keep growing through a major downturn in housing, and raises the possibility of a regional recession in the Midwest. Yes, I know the fourth-quarter GDP growth looked strong. But I'm not convinced that the big boost that came from net exports in 2006:Q4 is going to be repeated, while I do expect the bad numbers for residential fixed investment to continue.
Maybe something's wrong with me, when even 3.5% GDP growth is not enough to stop me from worrying.
Posted by James Hamilton at February 1, 2007 09:25 PMdigg this | reddit
As I learned from my trip up there last summer, the upper Midwest is pretty much the only place in the country where young people buy mostly American cars (explaining how some folks can have such an oddly off-kilter view of American cars compared to the rest of us).
Once the layoffs up there cascade through the economy, it'll rebound and hit GM, especially, even harder I think. The rest of the country isn't going to buy their trucks like they used to; the pro-GM elderly cohort is dying off; and the non-elderly in the rest of the country get enough exposure to GM cars at the rental counter to know they Don't Want Any, Thanks.
Posted by: M1EK at February 2, 2007 08:58 AM
Again i do not have any graphs or data to share but I drive for auto dealers and do auto trades.
Yesterday I delivered a 2007 Buick Rendezvous and after driving it a bit I got a feeling that it was not built very well. What clinched my suspicion is when i saw a space where the headliner and the windshield meet and low and behold I could literally put my hand into that space and pull down on the headliner!! What a piece of junk! Oh and by the way the sticker price was 31,000!
Posted by: kuros at February 2, 2007 10:10 AM
Ok, looks like I have to rescue my estimate of worry-free James somewhat. I see the Ford sales number is largely due to the rental fleet market and needs further study as to why that 'buffer' quit buffering.
The good news: this month is so bad, the m/m stats for next release will look heart-warming... possibly even the quarterly [Someone has to be cheery now that James has abandoned that pose!]
kuros, I'm sure the difference in quality you are arguing for is greatly exaggerated (J Power thinks so...but resale prices sorta back your side...but that was then and this is now). Isn't it more to do with (ready? my marketing department and associated staff of well-wishers are nearly ready:) not being able to build a car that (still ready?) the American consumer wants to buy. Even after all that marketing prep! [I say: there goes Chomsky down the drainO.]
MIEK, I do think that there may be something to this generational aspect having read about the high portion of younger but financially distressed GM buyers. [GMAC no longer a part of GM, yes?]
I'm still recovering from #1 selling vehicle in America (06): the Ford F150 pickup.
I know this is trying to tell me something, but I'm just not cooperating.
Posted by: calmo at February 2, 2007 11:38 AM
Professor, I think it's time to start worrying.
Median prices for resale homes in New York state are down 14%, Dec. '06 compared to Dec. '05:
Ugly December for Nassau County; median prices were down 4%, Dec. '06 compared to Nov. '06.
In my analysis of San Diego data, I found seasonality in sales, but not prices. So, I would think that this is not a seasonality effect, the Nov. to Dec. drop.
Posted by: jg at February 2, 2007 12:14 PM
I see a lot of "Irrational Worrying" lately:) It invariably comes from not looking at all the data neutrally, giving greater weight to the most-pessimistic parts.
Housing is a great example. Although you wouldn't know it from the current headlines or the economics/stock market blogosphere, housing foreclosures were a lot higher in 2001-02 than they are now.
The argument that problems in the housing sector are large enough to drag the entire economy into recession doesn't hold much water, either. Residential housing only makes up about 1/6 of the economy. Salaried workers employed in U.S. residential construction total under a million, 7/10 of 1% of total non-farm payrolls, just to put things in perspective.
Not to say that everything's rosy, but it's not all bad, either, and certainly not the stuff of which recessions are made.
Posted by: Sebastian at February 2, 2007 03:52 PM
I'm all for perspectives, even Seb's
Residential housing only makes up about 1/6 of the economy. Salaried workers employed in U.S. residential construction total under a million, 7/10 of 1% of total non-farm payrolls, just to put things in perspective.and I'm always amazed at how these numbers collude to befuddle me (yes, even me!).
How is it possible that a mere 0.7% of "salaried US workers", that motley crew of residential "material handlers" (a title from the mighty BLS), could account for 17% (my way of demonstrating CEO-like powers of mathumpery) [Ok, and remembering grade 6 fractions] of the entire economy?
Let alone be called a driver, The Driver, of this economy!
Let's cut to the chase: Investment Banking: the Driver of the Economy.
Ok, ...could have less salaried employees than the material handlers...so what's your guess smartie-pants?
Posted by: calmo at February 2, 2007 04:22 PM
Keep in mind that there are now other areas where there is growing strength to offset Detroit's weakness - aerospace comes immediately to mind.
Following 9/11, the entire commercial side of the industry went through a prolonged downturn - that trend has now been fully reversed and the sector will accelerate in the next two years (thanks to Airbus' "jumbo" production problems and Boeing's restructuring.)
Basically, Detroit is going offline while Seattle is coming online. The one offsets the other and will help sustain growth - better, since Boeing's products are such a mammoth contributor to U.S. exports.
Posted by: Ironman at February 2, 2007 08:16 PM
There are a lot of unanswered questions and implicit assumptions underlying your claims about the size and influence of the housing market.
First, let's look at the claim that res. housing only makes up "1/6" of the economy. What number are you using the measure "the economy" there? GDP? If so, there are a number of huge pitfalls in that metric, which tends to be inflated as credit is inflated. For instance, national borrowing is counted towards GDP, which goosed it by almost $1 trillion out of less than $13 trillion last year.
Secondly, even by the standard GDP yardstick, note that if a sector the size of 1/6th of the economy were to contract by just 30%, that would lop about 5% off the GDP. That would put us in a rather deep recession.
Next: "Salaried workers employed in U.S. residential construction total under a million, 7/10 of 1% of total non-farm payrolls, just to put things in perspective." -- The perspective here is lacking. First of all, you're leaving out those "off the books" workers, whose lack of work is likely already showing up heavily in poor earnings results at WalMart. Secondly, construction is not the only sub-sector of housing that has become an employment refuge for the economy: there's also realty, appraisal, financing, home furnishing, and much more. I believe the rolls of the NAR have swelled by something like 1 million people in the past half decade, for instance. And we are now already witnessing mortgage lenders contract in terms of employment, as companies close or lay off workers en masse.
I think we could easily see two million jobs lost. Color me worried.
Posted by: Aaron Krowne at February 2, 2007 11:24 PM
We have nothing to fear. Our export economy and "free trade" policy will take up the slack. Remember, now, everyone is really, really better off.
If the US slumps, the dollar will fall in value relative to foreign currencies, making domestically produced goods more attractive to the world. By the laws of Adam Smith, American goods-exports will soar, making everyone better off.
Posted by: zinc at February 3, 2007 04:40 AM
Basically, Detroit is going offline while Seattle is coming online.
Aerospace doesn't generate the jobs anywhere near as much as automotive. Locally in Seattle & Kansas but few elsewhere. And the supply chain & outlet channels are also much smaller.
The domestic sectors on the mfg side that generate the most 'activity' are housing & automotive... and both are slumping.
Aerospace DOES generate way more tradeables though - exports - even considering the 'restructuring' which has increased foreign content in Boeing product buy quite a lot (I've been told its approaching 30%).
I think the real story isn't so much 'aerospace will save us' as much as will the foreign auto transplants continue to pick up the slack as GM & Ford stumble?
That and can we still have a vibrant domestic services sector if our tradeables continue to suffer?
I do not have an answer to either question.
Posted by: dryfly at February 3, 2007 07:18 AM
Aaron, I know about the "job-loss multiplier" argument.:) It sounds logical but there's no evidence in the employment numbers that shows it's a problem. Housing price-growth peaked over 2 1/2 years ago. Home-building stocks peaked in Summer, 2005 and were 40%+ off their highs by Summer, 2006. The problems in the housing market have been around long enough that they make headlines in the mainstream media, and they're the next-to-the-last entity to figure anything out, just ahead of the Federal Government.:)))
This far into the housing "bust" there ought to be at least some evidence that the net job loss is meaningful. Yet the economy keeps producing enough jobs to absorb whatever is being lost in the housing and housing-related sectors.
Which brings me back to my main point: The bad news is being given more weight than the good. Or worse, actually: Opinions about how bad things are get more weight than facts about how good things are.
Posted by: Sebastian at February 3, 2007 09:15 AM
I don't know about Boeing picking up the slack - plenty of folks around Seattle and Portland who were laid off and never re-hired. Boeing might be doing well for its and managers and stockholders and perhaps US prestige but not as well for US workers.
Posted by: FredW at February 3, 2007 04:08 PM
zinc posts with a (seamlessly sarcastic) [ --not like this which needs to label every cotton-pickin shot] galvanizing line that Exports will save the day.
Regular readers here will know that although the last quarter Net Trade numbers were spectacular (and that Aircraft (table 4.2.2) sales had the best q/q bounce in a decade), the gap between Exports and Imports is still large...and possibly still widening on a y/y basis. The real difference last quarter (pretend its a trend) though, was Imports. No, it wasn't the consumer goods, but the Capital goods and the Industrial supplies and the cheaper petroleum goods.
So will Imports (the drying of) save the day?
Fuggedabout this insoluable problem of finding the Driver(s) of this economy: what of the driven? Yes, those consumers which need to hatch some place else and have an insatiable appetite for American Pie. We can compete in China. An American grocery store on every corner...ok, maybe not cheese burgers or pizza, but we can innovate. We always have. We always will.
Posted by: calmo at February 4, 2007 06:56 AM
"I don't know about Boeing picking up the slack - plenty of folks around Seattle and Portland who were laid off and never re-hired."
I would be among those Boeing laid off and not rehired by the company. As with the majority of my peers, I've gone on to bigger and better things.
What has been and is happening is that those with the skills, experience and training that had been highly demanded or developed by Boeing have dispersed into thousands of other occupations at hundreds of other companies.
That transfer of knowledge from one company to several thousand smaller ones across the U.S. is one of the most unappreciated elements behind the country's continuing growth in productivity.
It's easy to focus on the few individual cities where massive layoffs like Boeing's and now Detroit's have occurred. The supply of available jobs similar to those recently lost in these places following a mass layoff drops to near zero, and stays there for a prolonged period of time.
But by focusing just on these cities, you're missing what's really happening as the talent that had been confined to just one company becomes spread among many in many different places. There are always other and often better opportunities for those who want to pursue them.
Why wouldn't it be the same for those who worked in Detroit? Look at how many people opted to take Ford's buyout package. That's something that only those who have other options that they find acceptable would ever consider doing.
"Boeing might be doing well for its and managers and stockholders and perhaps US prestige but not as well for US workers."
It has really only been in the last two years that Boeing's stock has been worth owning. That's two years following the company's mass layoffs. And for the record, the company's success is being shared by its managers, stockholders and some 40,000 of its workers.
In fact, the only people at Boeing who are not directly sharing in its recent success are its mechanics, whose union chose to forgo significant raises, bonuses and incentive-related pay in their last contract in exchange for no employee-paid premiums on their health insurance. But hey, that's what they wanted, so how can they be losers?...
Posted by: Ironman at February 4, 2007 07:20 AM
"Aerospace doesn't generate the jobs anywhere near as much as automotive. Locally in Seattle & Kansas but few elsewhere. And the supply chain & outlet channels are also much smaller."
You're massively underestimating the size of the aerospace industry and its supply chain. The industry in Texas alone may be larger than Seattle and Kansas combined, and you may be missing places like California, Georgia, Connecticut, Florida, Arizona, etc. in your count! But you are correct that the outlet channels are much fewer in number - the company basically sells direct to its customers (primarily airlines).
"Aerospace DOES generate way more tradeables though - exports - even considering the 'restructuring' which has increased foreign content in Boeing product buy quite a lot (I've been told its approaching 30%)."
It's higher depending on the model. The 737 is mostly made in the U.S. (it's the top seller in quantity), while the new 787 has quite a bit more than 30% sourced from foreign countries, primarily Japan. That's not a bad thing - the company sells a lot of finished products to the airlines of the countries where it acquires components.
"I think the real story isn't so much 'aerospace will save us' as much as will the foreign auto transplants continue to pick up the slack as GM & Ford stumble?"
That's an interesting question, but one that only applies to those who have skills that can't be transferred to other industries. To answer the question, the thing to watch is not how many people work at the foreign auto transplant production facilities in the U.S., but how many people work at the businesses that support those facilities.
"That and can we still have a vibrant domestic services sector if our tradeables continue to suffer?"
Posted by: Ironman at February 4, 2007 07:44 AM
Iron, do check the BEA to verfiy this:
You're massively underestimating the size of the aerospace industry and its supply chain. and adjust who is "massively underestimating" the scale of the aerospace industry.
So after $35B losses, the airlines have those pesky bankruptcies behind them?
Last thing: For the record (that would be this very narrowly distributed but demanding one), nobody disputes that the company's success is not shared, just how equitable that sharing is.
And for the record, the company's success is being shared by its managers, stockholders and some 40,000 of its workers.
Posted by: calmo at February 4, 2007 09:49 AM
Toyota up, Ford down. This is of the second order of importance. What will be up BIG TIME in next decades ... think of China Geely's and Chery's. You may hope that still big part of it will be in US or Europe (design, more complicated parts). No, it will be made in China (Asia) as well. Detroit, but many European cities as well have to wake up to new reality, and stop dreaming.
Posted by: Rybinski at February 4, 2007 12:49 PM
I would like to see posts from Menzie and Jim on the IPCC report.
Should WTO take an active role in addressing the IPCC report? Right now, it is hands off the environment.
What about Cherac's threat to put a carbon tax on American goods if America continues being the ostrich?
Can free, unregulated markets address the issue of global warming?
Trade agreements are powerful levers with which to address the issue. We might all start by reading the WTO principles;
How about it guys?
Is it time...or would you like to wait five or ten years more?
Posted by: Stormy at February 4, 2007 05:27 PM
Ironman - Glad you're doing well, however, I'd like to request a judges' opinion on the following;
"'That and can we still have a vibrant domestic services sector if our tradeables continue to suffer?' Yes."
My understanding was that trade deficits eventually had to be made up by increasing exports...but maybe we're some new paradigm where countries are willing to collect our dollars forever like some rare stamps?
Posted by: FredW at February 4, 2007 08:15 PM
" raises the possibility of a regional recession in the Midwest. "
From what I hear from relatives in Michigan, and from what I see from housing in Michigan and Indiana, that regional recession is already here with a vengeance!
Posted by: Nick at February 5, 2007 01:55 PM
What Nick hears is fact. Michigan's unemployment rate ended 2006 at over 7% even with seasonal employment.
Housing starts and existing home sales are in cold storage.
Ford has borrowed Alan Mulally from Boeing and there may be some hope there. He says the right things, but things have to be in a mess with thousands of white and blue collar employees leaving. Strangely, the quality of the vehicles has improved significantly. Fusion comes in higher on quality surveys than Camry and Accord.
Toyota has done an excellent job selling a quality image that is about to be dunked in sludge... engine sludge from hundreds of thousands of faulty engines whose owners were told that they didn't take proper care of maintanence, but were actually victims of faulty design. But the anti-American car company press will ignore that.
Toyota is also concerned about increasing costs related to wages and benefits and is actively searching for ways to circumvent their present policy of paying competitives wages and benefits without alienating their employees' communities.
Posted by: Anonymous at February 8, 2007 04:47 PM