No Light at the End of the Tunnel for US Car Companies in 2009?

By Rick Newman

Now that the annual sales numbers are finally in, it’s clear that 2008 was a horrendous year for nearly every automaker. Annual car sales peaked at about 17 million in 2006. Industry analysts used to think that a one-time dip to 14 million would be a catastrophe. In 2008, total sales fell below that, to about 13 million.

We all know who took the hardest hit: Detroit. General Motors’s 2008 sales fell 23 percent. Ford’s annual sales fell 21 percent. Chrysler, probably in the worst shape of all, endured a 30 percent plunge. To put all of that in perspective, consider that holiday retail sales – which were the worst in a generation – only fell by about 5 percent. And that’s expected to cause a flurry of retail bankruptcies in 2009. A Detroit-sized decline in retail would probably close half the malls in America.

The strongest automakers – namely, the Japanese - got clobbered too. Toyota’s 2008 sales in the U.S. fell by 17 percent. Honda started the year bucking the trend in falling sales, but ended 2008 with an 8 percent drop. Nissan’s U.S. sales fell 11 percent.

Okay, so we know 2008 was the equivalent of a multicar pileup. What about 2009? Here’s a preview:

Sales will be even worse than in 2008.

J.D. Power & Associates predicts 2009 sales of 11.4 million, which would be a crushing 30 percent fall from the peak. Other forecasters think sales could be even lower. Sure, there’s a chance those predictions could be too bearish, but almost all of the factors that influence car sales are going in the wrong direction. The housing bust has reduced the net worth of many Americans. With layoffs mounting, the unemployment rate in 2009 will probably exceed 8 percent, compared to 6.7 percent now. That has trashed consumer confidence and shut down spending. Anybody who’s worried about losing their paycheck isn’t going to splurge on a new car.

The best deals wil be in the first half of the year.

For those comfortable spending, boy, have we got a deal for you. The auto industry is in the eye of the storm right now, with sales for the next 6 months likely to be the low point of the sales debacle. Automakers and dealers will eventually wind down unsold inventory and consolidate. But at the moment, a glut is on. Edmunds.com says that rebates and other incentives currently average nearly $3,000 per car, the highest level they’ve ever measured. On some trucks, SUVs and other slow sellers, totals giveaways approach $10,000. But those deals won’t last forever.

By later in 2009, automakers will have dramatically scaled back production, pumping far fewer cars to dealers. Eventually, sales will start to bounce back, and there could even be a temporary shortage of the hottest models. At that point, the deals will diminish.