Another bump in the road

All hangovers are bad. Delayed hangovers are diabolical. Anyone who’s woken up feeling surprisingly fine after a late night on the town, only to crumple in agony later on, knows that. Now, so too does everyone who thought the strong rebound in America’s auto sector could continue unabated.

After months of improving sales, U.S. car buyers stayed home in August. Dealers unloaded roughly 997,000 cars and trucks, down five per cent from July and a whopping 21 per cent decline from a year ago. Not since 1983 did Americans buy fewer vehicles in August. A year ago, of course, was the peak of Washington’s Cash for Clunkers stimulus plan, which saw the government offer up to US$4,500 to people who traded in gas guzzlers for new cars. And for a while the shot of adrenalin had the desired effect on the broader economy. Manufacturing levels finally began to rise, shell-shocked consumers rediscovered some of their confidence, and overall retail sales seemed to benefit.

But economists warned the binge buying wouldn’t last, and they were right. In August, General Motors saw its sales drop 24.5 per cent from last year. Toyota, which benefited the most from the Clunkers program, is now reeling from the fallout of its recall crisis—sales plunged 34 per cent. Not surprisingly, there are already calls for more cash for more clunkers. “Anything the government wants to do to stimulate the economy and auto sales, we’d be pleased to work with them on,” GM’s vice-president of U.S. sales operations, Don Johnson, told the Detroit Free Press.

It’s worth noting that, as with all aspects of the economy right now, Canadian auto sales stood in stark contrast to what was seen south of the border. While hardly a gangbuster month, August saw sales increases for all the companies except Toyota.

The question now is whether all this indicates a double dip in the crucial American auto sector. Carlos Gomes, an automotive analyst at Scotia Economists, doesn’t think so. Despite consumer anxiety, he sees improvements in the industrial side of the U.S. economy. It’s just that it’s going to take a very long time to recover from this hangover.