Auto Sales Drop Hard

Let's start this with a long-term look at oil.



Oil broke into a strong rally in 2004. It has been rallying ever since. In addition, the idea of peak oil has been around for at least 5 years that I know of and probably a lot longer. Finally, China and India have been growing at high rates for some time, indicating that demand for oil would be increasing as those two countries increased their overall standard of living. Bottom line: a spike in fuel prices is hardly surprising.

From Marketwatch:

Dearborn, Mich.-based Ford said that total sales, including sales of its Volvo brand, fell 28.1% to 174,091 cars and trucks from 242,029 last June. Retail SUV sales dropped 40% through the first half of the year, compared with the same period in 2007.

.....

Truck sales fell 35.6% to 101,981, with the flagship F-Series, the onetime industry sales leader, posting a 40.5% decline amid record-high gas prices and a persistent housing slump. Smaller passenger cars from Toyota and Honda now own the top spots.

"Consumer fundamentals and consumer confidence deteriorated as the first half unfolded," said Jim Farley, head of Ford's marketing and communications division. "The economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty."

.....

Like Ford, Chrysler LLC reported a steeper-than-expected decline, down 36% to 117,457 vehicles from 183,347 in June 2007.

June sales reflect a continued contraction of the market for its pickup trucks and sports utility vehicles, on which Chrysler depends more heavily than everybody else. Still, it was Chrysler's cars that paced the slump, falling 49% to 29,858 vehicles while trucks slid 30% to 87,599.

.....

GM reported an 18.2% decline in light vehicle sales to 262,329 cars and trucks from 320,668 in June 2007. Sales of cars slid 21.1% while trucks declined 16%. GM also was a tad more optimistic than its crosstown rival Ford with its assessment of the coming months.

"We continue to believe that there will be some strength in the economy in the second half of the year," sales analyst Mike DiGiovanni said in a conference call. "However, we're not naive enough to think this isn't a challenging time."

So, we've learned that in a rising oil environment, consumers don't like trucks. US car makers love trucks. That's one of the main problems they're dealing with right now.

Let's see what the charts say about these companies:



Ford consolidated in 2004 and then dropped hard at the beginning of 2005. The stock found a floor in the $9 area, then dropped again into the middle of 2006. Remember -- this is when the US economy was growing. Ford again consolidated from 2006-2007 and then fell at the end of last year. The stock tried to rally in the second quarter of 2008 but fell back.



GM declined from the beginning of 2004 to the beginning of 2006. Again, this was when the US economy was growing so the stock price should have been increasing. The stock rallied through 2006 and consolidated in 2007. However, the bottom fell out at the end of 2007 and the stock has been dropping ever since.



Toyota has been rallying since the second quarter of 2003. They hit a high at the beginning of 2007 and have been falling since. Over the last few months the stock has moved through the long-term upward sloping trend line, indicating a long-term reversal is at hand. However, the stock rose when the economy was growing unlike the US companies.



Like Toyota, Honda rose from mid-2003 until the beginning of 2007. The stock fell from the beginning of 2007 to the beginning of 2008 but has since risen. Maybe that's because they build fuel efficient cars and do it well?

The charts indicate that traders are less than enamored with US car companies and are completely enthralled with Japanese companies. There's a reason for that. One set of companies planned for high oil prices and one didn't.