FEBRUARY 4, 2009

A challenging time ahead

The automobile industry has been waiting with some trepidation for the latest US car sales figures to see whether the trends in recent months are continuing, or whether there is some hope of a recovery. The news was not good. In January it is estimated that sales of cars and light trucks in the US market were down 37% compared to a year ago. Chrysler sales fell 55%, General Motors dropped 49% and Ford 40%. The drops were worse than expected. The car companies blamed the fall on a drop in fleet operators buying new cars and the inability of consumers to obtain car loans in the current financial climate.

The number of cars sold was the lowest in a month since December 1981.

The drops in sales mean that the big US companies will have to close more factories, or slow down production by other means.

Things have been little better for the foreign car companies in the US market with Mercedes-Benz having lost 43% of its US sales, despite the fact that sales of Smart cars nearly tripled, as consumers went for more cost-effective machinery. Porsche down 36%. Toyota, Nissan and Honda were all down, with the drops being 34%, 30% and 28% respectively. Audi dropped 26% while BMW had a better month with a drop of only 15.5%.

The problems which are highlighted by the car industry have resulted in Britain's National Institute of Economic and Social Research saying that the plunge in consumer spending will drive Britain into its deepest economic slump for 60 years. The institute says that it expects the UK economy to shrink by 2.5%. This has been offset somewhat by the weak pound, which has helped British exporters. The institute says that recovery will not start until next winter and the British government will bear the brunt of the recession with a big increase in borrowing because of the various rescues in the financial sector. National debt will rise to around 70% of GDP, which is close to double the figure in 2007.