The sales slump shows that US consumers remain very cautious about big ticket purchases as they endure to terrible housing slump and rising unemployment. We will get an update bon US employment Friday night when the August job numbers are released. Economists are looking for another 70,000 plus jobs to have been lost.
Not helping sentiment among consumers will be the news that General Motors Acceptance Corp, 51% owned by a private equity company (which also controls struggling Chrysler) and 49% owned by General Motors, is going to close 200 offices and sack 5,000 people at its car financing and home loan divisions. High profile retrenchments are adding to the pressures caused by the housing and credit crunches.
US petrol prices remain high, but have eased to around $US3.68 a gallon for regular unleaded, down from the record $US4.11 a gallon, but that is still obviously too expensive for many buyers. The caution of the US consumer, which accounts for around 70% of activity in this country, was seen in the latest so-called Beige Book from the Fed. That's a collection of and discussion on anecdotal stories on economic conditions in all 12 Federal Reserve Districts across the US. Its an abstracted version of what Fed officials are told each month or so in their discussions with business and other groups.
The latest edition, released overnight, shows an economy still struggling with slow growth and high prices. The housing, credit and financial market problems are still damaging the economy and the tone of the commentary makes it clear the Fed will leave interest rates steady after the next meeting on September 16. Heading into the third quarter when home heating costs start becoming an issue instead of petrol costs, the Fed said businesses described the climate as "weak" or "soft" or "subdued."
Consumers, the lifeblood of the economy, showed caution. Shoppers "concentrated on necessary items and retrenchment in discretionary spending." In other words they have cut right back on their spending and are now only buying essentials, or have down scaled purchases to cheaper items.
The fed said that as a result of this caution consumer spending was "slow'' in most of the 12 Fed districts as the housing market "weakened or remained soft.'' It saw a general pullback in hiring of new staff and no wages pressures. "The pace of economic activity has been slow in most districts,'' the report said. Manufacturing "declined'' in most regions, and demand slowed for home mortgages and consumer loans, the Fed added.
And this caution by consumers continues to wreak havoc on US car sales. Figures released overnight show that General Motors sales fell 20% and ord Motor Co.' 27%. GM also raised its third-quarter production forecast because of cheap financing and other incentives to clear backlogs of unsold models, but Ford saw the market worsening in the next few months with no real improvement expected. Once again Toyota wasn't spared as its sales dropped 9.4% in August.
In relative terms Honda again did better than its competitors: sales were off 7.3% in August after similar performances in earlier months and its Accord model now outsells Ford's F-150 pick up truck which was once the biggest seller in the country.
With the 20% drop, August was GM's best month this year as the company sold 307,285 vehicles thanks to a popular "employee pricing" incentive program which allowed any buyer to get a vehicle for the same cost as a GM employee. That offer has been extended into this month. But the car giant still said it was the worst August for car sales for 15 years.
Sales of light trucks, which includes pickups, SUVs and vans, again fell sharply in August, off 24% from a year ago.. Ford's sales are now down 16% this year compared to the first eight months of 2007 and the stumbling giant has cut its production plans for the rest of the year by around 50,000 vehicles. Ford said it now sees industry sales coming at around 14 million this year. The biggest drop in sales came at Chrysler. Its cars and trucks were all but unwanted by US buyers. Its sales plunged 34%, with virtually every model the company offers (including Jeeps and Dodges) posting double-digit percentage falls compared to August of last year. Light trucks sales at Chrysler tumbled 33%, while car models plunged 39%.
