Vehicle Sales in the U.S. Decline for the 15th Consecutive Month

American consumers remain cautious, leading to expectations of weak results for January vehicle sales from automotive companies and retail chains, with analysts predicting a continuation of the dismal consumer environment until the end of the year.

Despite announcements of stimulus economic measures by the Barack Obama administration, consumers in the U.S. continue to be cautious and refrain from making larger purchases. Executives from automotive companies and major vehicle dealers warn that January sales will not show signs of improvement and that the negative trend from last year’s final quarter will continue. Today, General Motors, Toyota, and Ford are expected to announce their January sales results. A continued decline in vehicle sales in the U.S. is anticipated, marking the 15th consecutive month.

In 2008, vehicle sales, which typically account for 20 percent of total retail sales in the U.S., fell by 18 percent to 13.2 million vehicles, the lowest in the last 16 years. Analysts for Reuters estimate that January sales could drop to 10.2 million vehicles on a year-over-year basis. For comparison, sales in December were reduced to 10.3 million vehicles, despite significant discounts offered by manufacturers and easier financing. “Consumer hesitation to purchase durable goods continues to impact this industry,” emphasizes Brian Johnson, an analyst at Barclay’s Capital.

The automotive industry website Edmunds.com forecasts that Chrysler will report a 48 percent decline in sales last month compared to January 2008, General Motors 38 percent, and Ford 30 percent. In some companies, particularly Ford, it is estimated that vehicle sales could recover by the end of the year with the implementation of the stimulus package measures from the Obama administration. IHS Global Insight predicts that sales will fall in January on a year-over-year basis to 9.7 million vehicles, which would be the lowest sales since 1982. They also believe there will be no ‘Obama effect’ on the light vehicle market. January could also prove to be poor in terms of overall retail sales in the U.S. This week, official data on retail sales from leading U.S. retailers is expected.

Analysts expect to indicate a sales decline in January of at least 2.5 percent compared to the same month last year. This would be the largest sales drop since 2000, or since Reuters began tracking these data. “New store closures and further cost-cutting in the retail sector will follow, as retail companies respond to the rather dismal consumer environment this year,” says Kim Picciola, an analyst at Morningstar. The latest in a series of retail companies announcing cost-cutting measures is Macy’s, which yesterday announced the layoff of 7,000 employees or 4 percent of their total workforce, freezing executive salaries, and reducing capital expenditures. Analysts fear that retail results will not improve even in the spring. A lack of consumer motivation to buy, rising unemployment, and falling prices will maintain poor conditions in retail throughout the year.

“Consumers will be largely cautious in the first half of the year, given everything happening in the economy, and this caution will likely carry over into the second half of the year,” says Picciola. On global stock exchanges, however, there is a better mood today than in previous days, after Australian and Japanese authorities intensified their efforts to revive their economies. The Australian government’s stimulus package worth $26 billion, a reduction in the key interest rate to a record low of 3.25 percent, and the Bank of Japan’s decision to purchase stocks from banks’ portfolios have somewhat alleviated investors’ fears of weak corporate earnings. The MSCI World Stock Index is up 0.4 percent this morning. (H)