Auto Stocks Crash With No Clunkers Cash

October 7, 2009

In the "post clunker" era, automakers are in a world of hurt once more. General Motor (GM) saw September auto sales that were the worst, falling 45% to 156,000 cars and light trucks. Chrysler's sales drop as a percentage was close behind, dropping 42% to 62,000.

Both of these automakers failed to stock enough cars on their lots due to bankruptcy restructurings and temporary plant shutdowns. But even "healthy" carmakers took a nosedive. Honda (HMC) saw September sales decline 20% to 77,000 vehicles, while Toyota (TM) car sales dropped 13% to 126,000 vehicles. Ford (F) fared much better with its sales falling only 5% to 114,000 vehicles.

Clearly doubts remain over both Chrysler and GM, since their sales decline was much more dramatic than Ford's. It's almost as if consumers believe that these brands are tarnished or that shoppers are purposely avoiding auto companies that are partially owned by the U.S. government.

But even Ford has its own doubts. A senior economist at the company indicated the U.S. vehicle market was very difficult to interpret even for industry veterans, though she stressed overall conditions were improving even though the general economy and credit markets remain "fragile."

It looks like lean times will persist for automakers. In my free Portfolio Grader tool, my Best by Sector search uncovers only two stocks rated "buy" in the entire auto industry–Ford, and a standout motor-home manufacturer Thor Industries (THOR). These Best by Sector searches are updated every week, so check back often for the latest rankings among 5,000 stocks on Wall Street.

Looking forward, the brightest spot on the automotive horizon is that used car prices are rising. Since all the "clunker" trade-ins had to be sent to the scrap yard, there is actually a shortage of used cars, and the prices of used-car are now the highest levels in years. One widely followed measure of used-car prices, the 14-year-old Manheim Used Vehicle Value Index, will likely hit a record when data for September are released in early October. This is especially true for "gas guzzlers," since they were disproportionately targeted by the clunkers rebates. It's a supply and demand thing. With fewer SUVs out there, resale values are pushed up.

But used car sales do little for dealers and manufacturers even if they help local car lots. The bottom line is that carmakers are going to be in trouble for some time as consumer spending remains weak and drivers are hanging on to their old cars for longer periods.

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