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Are car sales and bailouts linked?
(Montgomery Advertiser (AL) Via Acquire Media NewsEdge) Feb. 8--Maybe it was just coincidence, but the two car companies that accepted government bailout money had the steepest sales declines in January.
Chrysler and General Motors took the cash, then reported sales far below the industry average. Chrysler's sales fell by 55 percent, and GM was down 49 percent.
Other companies, of course, had a rough month as well, but it is interesting that Ford sales declined about 30 percent.
There are few obvious reasons why GM sales would be down much more sharply than Ford's. Neither company has that big an edge on price or product.
Ford, at least so far, has told the government to keep the taxpayer money.
Auto bailouts were a hot-button issue for most of the last six weeks of 2008. People, whether in support of them or against them, were much more passionate than they were over the bank bailouts.
In many segments of society, there is honest resentment against the Big Three auto companies and their employees, who are sometimes viewed as overpaid and spoiled.
To be fair, some people see companies like Honda, Mercedes and Hyundai, all with plants in Alabama, as interlopers.
It became so divisive that observers from auto states like Michigan began referring to senators opposed to the bailout plan as "Toyota Republicans."
Political posturing and name-calling aside, the auto companies received at least part of what they asked for, with some pretty long strings attached. It is far from a slam dunk in predicting what politicians will do next with that bailout, but it might be possible that consumers are speaking on the subject.
Perhaps consumers are concerned that without enough bailout money GM and Chrysler will fail, and who wants to buy anything from a failing company?
On the other hand, perhaps these customers decided not to do business with a company that asked for, and received, billions of taxpayer dollars.
Jessica Caldwell, an analyst for Edmonds.com, said that fear, rather than anger, is likely the emotion keeping buyers away from GM and Chrysler.
"They don't know what is going to happen, and that is causing concern," she said.
She explained that in a worst-case scenario, GM or Chrysler could fail, making spare parts and repairs almost impossible to find.
That, of course, would frighten away buyers.
She also said that both GM and Chrysler slashed their fleet sales in recent months. Fleet sales, she said, can pump up a company's sales numbers, but do little for profit margins.
Basically, the companies are cutting off their lowest-profit customers while focusing on higher-profit retail sales.
All of that sounds possible, but it still seems more than coincidence that GM and Chrysler sales are off by such huge margins.
Caldwell said that cutting fleet sales is one way of showing Congress that the companies are serious about becoming profitable.
Perhaps, but she also predicted that some car company will find a way to make fleet sales work when the demand comes back.
Maybe two of the Big Three simply underestimated consumer -- taxpayer -- anger and the bailout billions.
To see more of the Montgomery Advertiser, or to subscribe to the newspaper, go to http://www.montgomeryadvertiser.com.
Copyright (c) 2009, Montgomery Advertiser, Ala.
Distributed by McClatchy-Tribune Information Services.
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