August Auto Sales Were Awful----But At Least It Wasn't July

Implications: The summer of 2008 with its monthly dose of double-digit sales declines is over. But will autumn be any better? Maybe.

Analysis:

U.S. auto sales fell by about 15% in August compared with a year ago, to approximately 1.25 million units from about 1.5 million units. And a chorus of OEM executives agreed that their forecast for the rest of 2008 looks just about as dismal.

But something else also appeared amid Wednesday's sales reports: reasons to hope the U.S. market has finally flattened out

It appears we may have hit the bottom in terms of consumer demand in July. Because of factors like lower gas prices and generous incentive spending, my dealer clients started seeing some improvement, particulary in floor traffic, in late August.

There was no sugar-coating the August results per se, nor the immediate outlook. Its going to be as tough for the rest of the '08 calendar year, with the domestic auto makers having to manage their way through a different challenge every month.

The main positive was simply that August represented a marked improvement over July, if not over August 2007. Industry-wide, August sales ran at a seasonally adjusted annual rate of 13.8 million to 13.9 million units, a significant improvement from the 12.6 million rate posted for July.

Talking last month about July, many industry executives seemed to recognize the nadir they had reached. The selling rate was lower than it had been since the recession of the early 1990's and the Detroit Three slumped to their lowest market share-43.4%-in history.

But speaking on Wednesday about August results, many of these same executives adopted a cautiously upbeat tone. They ticked off some budding reasons for at least glimmers of optimism, factors that included an accelerating retreat in gas prices, slight improvements in U.S. economic fundamentals, and even some health in certain aspects of the auto business.

One crucial assist in any second-half improvement, could be the fact that auto makers have so intensely adjusted to the sales decline and drastic shift in consumer demand to more fuel-efficient vehicles over the past several months. Something they did not do during previous downturns.

One question still left unanswered, is what effect the pullback from leasing, which accounted for 20% of sales, by lenders and OEMs will have on sales going forward.

The consensus seems to be that July was the bottom and we will start to see some small but steady improvement from now on.