Is this the light at the end of the tunnel or another set of oncoming headlights? Probably neither. But optimism over a jump in June US auto sales, being reported on Wednesday, was augmented by Ford’s announcement of a 16 per cent boost in third-quarter output.
Coming after some horrific months, sales are finally improving. J.D. Power & Co predicts an annualised pace of 10.3m vehicles sold in June, up from 9.9m in May. But that is still down from 13.6m a year earlier and well below the 16m plus considered normal not long ago.
Such heady figures are unlikely to be reached any time soon – perhaps not for a generation. But the new conventional wisdom is that, with a 5 per cent scrappage rate for an auto fleet of 250m, down from 6 per cent recently, sales should gravitate to 12.5m vehicles based simply on replacement rate.
Like many other backward-looking analyses though, this rule of thumb – one cited by the Treasury’s automotive task force – may be too optimistic. America’s dependence on cars is unshakeable for the foreseeable future, but a saturation level of over one vehicle per licensed driver may need to shrink.
Rather than validating rosy forecasts, Ford’s output boost seems more of a cautious tactical shift. Based on the low end of its own full-year projections, Ford may only expect annualised sales in the second half to rebound to 11m from 9.7m in the first half. Based on May data though, its inventory had dipped to just 56 days versus 88 for General Motors and 82 for Chrysler. With plenty of slack at its factories and signs it is gaining some market share at the expense of its bankrupt Detroit cousins, Ford’s move seems prudent, not exuberant.
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