Dark Days in Detroit

November 3, 2008

If you thought things couldn't get worse for Detroit, think again.

General Motors (GM) reported on Monday that its October sales were even worse than the darkest predictions, suffering a 45% plunge. Ford (F) followed suit with a 30% drop, aided (if you can use that word!) by its new F-Series pickup. Chrysler split the difference, with a 35% decline of its own.

Now don't think this is purely a domestic problem. Toyota (TM) and Honda (HMC) were both off more than 20% compared to last year. Industry tracker Autodata monthly auto sales were the worst since February of 1983.  

The latest GDP numbers from last week show that America is at the beginning of an "official" recession. Whether we meet the standard of two consecutive quarters of negative GDP growth matters little to industries like automakers, airlines, retailers, banks and a host of others that have been brutalized for months now. While nobody was expecting GM to post happy figures for October, the dramatic drop in sales will only mke the iconic automaker's quest for new capital–or a merger–all the more desperate.

GM was just denied aid from the Treasury, although GMAC is eligible for a government handout.  

This is just another symptom of the credit crisis that has sapped consumer spending. On October 25, the Conference Board reported that consumer confidence in October declined to only 38 from 61.4 in September.  This was the lowest reading in the 41-year history of this index and far below economists' consensus forecast of 52.  The Conference Board reported that consumer expectations turned "significantly more pessimistic," with the percentage of consumers expecting business conditions to worsen over the next six months rising to 36.6% from 21%, and those expecting fewer jobs rising to 41.5% from 26.9%. 

But there is hope. Despite these dire numbers, consumer confidence should rise in November, due to lower gasoline prices and the fact that the uncertainty of the Presidential election will finally be over. Still, it's going to be a long, hard road ahead for Detroit.