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Stock Ideas Investors Daily Edge What’s Going to Stimulate Auto Sales?
Stock Ideas Investors Daily Edge What’s Going to Stimulate Auto Sales? 
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| What’s Going to Stimulate Auto Sales? |
| Tuesday, 11 November 2008 | ||||||||
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Another stimulus check should be coming our way as the market keeps falling. If it doesn't happen as one of the final acts of the Bush administration, it will happen as one of the first acts of the Obama one. The question is, will it help the fast-falling auto industry? It'll help retailers. The overwhelming evidence is that the last round of stimulus checks helped pick up consumer spending in the second and third quarters. But big-ticket retailers like auto dealers play in another sandbox entirely. Unless these checks have a couple of more zero's than the previous ones, the auto industry's fate is tied to getting another $25-billion loan package from the government. The auto industry needs it. And from Obama's latest statements, it looks like it will get it. And just in time. The auto industry is getting battered from three trends... 1. A worsening global economic slowdown 2. A global credit crisis which has dried up lending (including for autos) 3. A strengthening dollar, which makes American cars more expensive in overseas markets The numbers published last week on October sales were abysmal. Toyota reported a 23 percent drop, Ford a 30 percent drop, GM 45 percent and Chrysler 35 percent. GM is burning cash so quickly it warned this past Friday it'll run out of money during the first half of next year. It sounds like GM is in shock: "In my 27 years, I have never seen a month like this. It was like somebody turned off the lights in the month of October," a GM official said. The auto industry is in a free fall. September's auto sales numbers were terrible. It showed a loss of 30 percent. October's was worse. It showed a loss of 33 percent.
It's bad and getting worse. By all means don't go bottom-fishing in this sector now. If anything, shorting the sector makes much more sense.
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