Wednesday, November 5, 2008

Auto Sales Off by 1/3

This morning marks the end of the biggest news hole in U.S. history. Since August, most legitimage news stories have been buried by the news media’s focus on the Olympics, major party nominating conventions, hurricane season, general election campaign, and banking system collapse.

Expect a flurry of product announcements and other initiatives over the next 21 days as people who want attention for the things they are doing try to squeeze their stories into this brief window of opportunity before hard news is again drowned out by the Thanksgiving holiday weekend and Christmas carols.

Meanwhile, people who want their announcements to be overlooked have been rushing to get them out before lunch time today.

The continuing bad news for the auto industry has gone largely overlooked this week, and the latest news is grim indeed. October automobile sales are down by a third from a year ago. Sales for the month were the worst since the energy crisis days of 1975, and no one seems to think the trend has hit bottom yet. If consumers are content to drive the cars they already have for an extra two, five, or ten years, there is not much the marketing team can do about that.

For General Motors (GM), the news is worse. Sales are down 45 percent from last year, with per-capita sales at Great Depression levels. Its finance company continues to lose $30 million a day, and shareholders are bracing for another huge loss when GM reports its financial results on Friday. One GM executive called the current sales levels “unsustainable.” Outsiders have been offering that assessment of GM’s business model for years now, but it is another thing entirely to hear that word coming from someone inside the company.

The pain the auto industry is going through is the result of a lack of scalability in its business plans. A business is supposed to be ready to scale back and cut costs when demand softens. Yet many auto workers are still working overtime. It is as if the auto companies can’t quite believe the world doesn’t want as many trucks this year.

In a properly run business, a sales decline of only a third, which was forecast more than two years in advance, should not be a crisis. For companies like Ford, which has moved aggressively to cut capacity, and Toyota, which is particularly cautious in its capacity planning, it probably will not be. But for the companies that have tried to swim against the current in order to increase their market presence during the slowdown, the sting of customer indifference is twice as painful.