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Toyota's September Sales Off 32%

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Toyota saw global sales in the July-September quarter fall for the first time since 9/11 due to slowing demand in North America. Sales for the quarter fell -4% due mostly to a -32% drop in September.

I have been writing about it for weeks but most people still don't realize it is almost impossible to get a car financed due to the frozen credit markets. That downturn in lending and a slowdown in consumer spending in general produced a bad third quarter and Q4 is not starting out well.

None of the major automakers are prospering in the shadow of $147 oil. The game changed for everyone in the summer of 2008 as the fear of higher oil prices sent sales of SUVs, the cash cow for F, GM and Chrysler, falling to level below cost. Add in the gridlock on financing and it was the perfect storm for automakers. You would have thought Toyota could have escaped the storm since the majority of their cars are very fuel-efficient. Even though they get 25-35 mpg it is tough to sell a car without financing in America. Few Americans have enough cash to write a check for a $30,000 car.

GM announced they had killed the $2 billion CXX project. The CXX was the code name for the new and completely redesigned SUV. This redesigned SUV would be the basis for the company's Escalade, Yukon and Suburban models. Change the sheet metal and nameplate and a few options and they are all the same underneath. For the last 15 years GM has made billions on those high end SUV models. The board killed the program without a single dissenting vote. That effectively ends the era of the big SUV and the $10,000 to $15,000 profit GM made on each SUV produced. GM has always admitted they lose money on building passenger cars.

GM is facing the possibility of bankruptcy of government bailout in order to get through its restructuring phase and start churning out small economical cars that they hope Americans will buy. Chrysler may not be far behind and could end up being a GM division before it is over. GM was the biggest producer of large SUVs and therefore is suffering the biggest decline. One year ago the 90-year old Janesville Wisconsin plant was building 20,000 SUVs per month. Now that is down to less than 100. The 5,000 workers have dwindled to only 1,200 and GM said it would close the plant completely by year-end. GM invested $175 million in updating the plant in 2005 to build the next generation of SUVs. The plant built over 3.76 million SUVs over the last 18 years but it is now doomed by the death of the SUV. Over the last year GM has cut production of more than 800,000 SUVs and the lots are still full.

Those SUVs gathering dust on dealer lots will eventually sell now that gasoline prices have been cut in half. The U.S. average on Friday was $2.78 per gallon but stations in New Jersey are selling for $2.15 and a reader emailed that the Exxon station on I35 in New Braunfels Texas was getting $2.09 on Sunday. It is very likely we will see gasoline under $2 very soon. I suspect that will be the sticking point and it won't stray very far from $2 unless oil continues to implode.

Oil prices are trading at $63.50 on Monday morning and appear to be headed lower. S&P futures are down -37 points as I write this and falling sharply. It appears the global sell off is not over and the forced liquidation of stocks and commodities may still have a few days to run. I told my readers this weekend that I expect things to be better the first week of November but next week could still be rocky. This is the last week of the year for 25% of mutual funds holding 75% of fund investments. October is typically portfolio reshuffle month and that was accelerated by the global credit crisis and recession. I am looking for funds to add some stock as this week comes to a close in order to window dress those year-end statements. November through January are typically the best months of the year for the markets. Let's hope that trend continues.

Jim Brown

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