US autos/housing worsen

Cerberus.JPG
1 in every 196 US households was in receipt of a foreclosure filing at the end of September, according to Bloomberg. This is a scary number for anyone who owns a house. And Quarter 4 is likely to be worse. Latest figures from the Realtors Association show September’s existing home sales down 19.1% from a year ago.

US auto markets are also getting worse. I calculate that sales of the Big 3 (GM, Ford, Chrysler) are down 7.8% this year, based on latest sales data. Market conditions have deteriorated markedly since I last reviewed industry performance in early September.

Chrysler are already offering cashbacks and lease cash on most of their 2008 range. They are also taking an axe to inventory, which fell 8% last month versus a year ago. Even so, it still stands at 84 days sales.

Chrysler are bound to be aggressive, as the new owners are Cerberus, the private equity firm. And chemical companies can’t say they weren’t warned. Cerberus have, after all, named themselves after the 3 headed dog who guarded the gates to Hell in Greek myth! (The pic at the top by William Blake gives you the general idea.)

Darryl Jackson, their VP for U.S. Sales justified the cashbacks by referring to ‘growing concerns about the housing slump… and future economic conditions’. And we can see this in the latest reports from the individual companies:

• GM reported a 6% fall in Q3 vehicle sales versus a year ago.
• Ford were down 9.5% in October.
• Chrysler were 9% down.
Toyota managed a minor 0.5% increase (but noted that October had an extra selling day this year, so in reality their sales were also down on a daily basis)

Any US chemical company making final adjustments to 2008 budgets would be well advised to err on the downside. Domestic US markets could get very difficult next year, if core auto and housing markets don’t start to recover soon.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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