2011 Sales Will Be Close To 12.9 MillionBy Jeremy Anwyl August 12, 2011
Tuesday I posted a column that set the context for August sales and Thursday I posted an early look at August sales. Today lets look at the outlook for the next few months. Since spring, I have been keeping an eye on the risk factors - factors that threatened to slow or stall the fragile recovery of auto sales. In the last few weeks, the level of risk has risen sharply. Lets break this down further. The factor that concerns me the most is consumer confidence. In the last couple months, this has taken a beating. This matters because consumers who arent confident about the future are far less likely to spend money on big-ticket items, especially vehicles. So confidence is important. It can be moved by a consumers own experience, but usually it will be heavily dependent on media coverage. This is where things get tricky.
For the last three weeks, the stock markets have seen huge swings, with the overall trend being decidedly downward. Some of this was tied to the debt-ceiling spectacle, some to the Standard & Poors downgrade of the U.S. credit rating, some to fears of a domino-like cascade of European sovereign debt defaults, and some to general fears of global economies slowing down. The last item is the one we should focus on, and here the case is not conclusive. Yes, there is evidence of slowing growth, but this evidence was there a month ago as well, when the Dow Jones Industrial Average was around 12,500. Why then are the markets doing flipflops?
As I noted in a previous column, we live in a world of 24/7 access to information. Thirty years ago, I would have come home in the evening and gotten my news in one 30-minute dose. This gave me time to absorb and put it into context. Today, news is everywhere. And to get eyeballs, there is every incentive for news outlets to emphasize an extreme version of the news. We - as individuals, as organizations and as a society - have not yet learned how to modulate this barrage of inflated information.
This also magnifies the effect of negative feedback loops. Even if the global economic fundamentals have not changed much in the last 30 days, the political antics and ratings downgrades have generated plenty of news. This news has hit the financial markets and this generates even more news. Next, the extreme gyrations themselves become news.
If it were just markets that bounced around, it would just be interesting, but consumers are part of this feedback loop as well. Many use the Dow as a simple indicator as to where the economy is heading. (Even though history shows its track record is mixed.) Media headlines have a major influence on consumers as well.
Think about how this plays out: the market is overreacting. This generates news - much of it pretending to be explanation as to what is causing the turmoil. Specifically, he news coverage playing up the risk of a new downturn has increased markedly. And this coverage can actually be self-fulfilling. As I noted earlier, the real economic fundamentals have not changed much in the last month. In fact, a few have actually improved. But we are now at a point where the news can change this reality very quickly.
Things could still break either way. Recent reports on employment seem very mildly encouraging. Corporate profits are still strong. A positive effect of the fears raised in the last few weeks is that commodity prices have stabilized and even fallen. The fears that a U.S. debt downgrade would push up interest rate seem misguided, at least in the short term. And the financial markets may regain their footing.
Most importantly, there seems a high degree of need to buy in todays car marketplace. Consumers have deferred and delayed purchases: first from the recession and more recently from high prices triggered by the earthquake. Even a small slowdown in sales will push prices down quickly to normal levels - and even lower. There are good odds vehicle buyers will find enough opportunity in the market to keep sales at least as high as recent months. This may not be enough to result as high as Edmunds.coms 2011 sales forecast of 12.9 million vehicles, but it should be close.