Crashing US Auto Sales

US auto sales for January came in below estimates at a seasonally adjusted annualised rate (SAAR) of 9.57m units. The figure, the lowest since 1982 was down from 15.4m last year and saw a dip below the psychologically important 10m reading. Whilst the European and Asian manufacturers were hurt; the US big three, GM, Ford & Chrysler were once again the notable underperformers witnessing their  sales volumes fall by 51%, 43% & 56.5% on the same period last year.

The US manufacturers face huge challenges. Inventories remain high with consumers continuing to defer purchases of discretionary items. A poor product mix coupled with legacy healthcare and pension issues remain. Beyond that working capital requirements are consuming already decimated cash balances at record speeds and capital markets remain closed (long dated GM bonds trade around 15 cents in the dollar).

We remain deeply sceptical of most  auto manufacturers with even the stronger European players now coming under ratings pressure. The development plans that the US manufacturers must present to politicians on Feb 17th will be one to watch.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Stefan Isaacs

Job Title: Deputy CIO Public Fixed Income

Specialist Subjects: Bonds

Likes: Football, travel and the prospect of retirement

Heroes: Sir David Attenborough, Bill Shankly and Theodor Herzl

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