Commentary

Detroit Provides Port In Storm Of The Economy

It's one of those mornings where most of the headlines leave you feeling so bereft of hope for hitting your numbers (or retiring anytime in the next three decades) that you want to grab onto the news that September car sales soared by 9.9% overall -- and by 27% at Chrysler -- and just hug it.

The Dow hit a low for the year yesterday and futures are down this morning on continuing bad news out of Greece and Deutsche Bank's announcement that it won't make its target. The S&P 500, meanwhile, "edges closer to bear market territory," the Los Angeles Timestells us.

The Wall Street Journal has a triple-decker of consumer gloom: "Frontier of Frugality: Retailers Face Reality That Many People Can't Trade Back Up" by Ann Zimmerman; "Shoppers S-t-r-e-t-c-h Their Dollars: Stick to Lists, Shun the Brand Names," also by Zimmerman; and Hannah Karp's piece on the scenario that consumer-goods companies "thought would never come to pass: Parents are buying fewer diapers." 

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(The gooey lining in that last cloud is that sales of diaper-rash ointment are up 8%. And the sales slump could be due to the birth rate falling even as improved diapers keep the young ones drier but, says a pediatrician, "he and his colleagues have heard from a growing number of parents that they must choose between buying diapers and paying for food and heat.")

Everybody's all over the news that American Airlines, the No. 3 carrier in terms of passengers, may seek bankruptcy protection and that its share price plunged by 33% to an eight-year low on "on fears of a weaker economy" yesterday.

Even gold is losing its gleam. Prices dropped more than $3 an ounce last month, Financial Timesreports, which is "the largest short-term fall in more than 20 years."

Okay, okay, I hear you. Enough. Let's paddle over to the port of Detroit.

"I don't know of any other month where we had positive gains in auto sales with all of those negative factors," Jesse Toprak, vp for industry trends and insight at TrueCar.com tells the New York Times' Nick Bunkley. "The automakers might be convincing some consumers who may not be so eager to spend their money to buy a car because the product is so compelling."

More precisely, product out of Detroit may be proving more compelling than it has in years with both General Motors (up 19.7%) and Ford (up 9% overall with light trucks up 18.7% but car sales down 8.7%) also in very positive territory. Nissan was up 25.3% but Toyota was down 17.5% and Honda lost 8% even though factories in Japan were running at full capacity for the first time since the March earthquake and tsunami.

Big thinkers at the automakers see the development as a cautiously positive harbinger for the economy in general.

"As the economy seems to be stabilizing a little bit, I think there are a lot of people who had been postponing buying new vehicles now finally coming to replace vehicles," Ford economist Jenny Lin tells Reuters' Bernie Woodall and Ben Klayman. And GM sales chief Don Johnson says that, coupled with other unspecified economic data, he's a believer in a "a slow growth scenario but not a double dip."

"Strong products equal strong sales," Reid Bigland, head of the Dodge brand and U.S. sales for Chrysler tells Autoweek. "There is no double dip downturn going on around here."

The Detroit Free Press' Chrissie Thompson points out that consumers have been sitting on the sidelines since April, spooked by "higher gas prices, political gridlock, high unemployment and shortages of vehicles from Honda and Toyota."

Detroit News columnist Daniel Howes -- who we last observed stirring the controversy over Fords' "bailout" spot -- acknowledges that there are some macro economic factors at work in the sales surge.

"Interest rates are running at historic lows. Delinquency rates are sloping downward, not up. Used-car values are high. And the average age of vehicles in the U.S. market is 11 years, a historically high level...."

But Howes also avers that the turnaround in Detroit is very real and quite sustainable because the Big Three, with an assist from the UAW, have truly cleaned up their acts.

"Detroit declared war on denial -- on the belief that its crushing debt loads could be sustained, on the fact that it was paying people not to work, on the indefensible practice of building vehicles without a market for them, on the ruse that investors would keep supporting a business model rotting from the inside out," he writes.

Low interest rates help. "Most consumers like to minimize their monthly payment," Bob Carter, Toyota division group vp and gm tells the Los Angeles Times' Jerry Hirsch. Zero-percent or low-interest rates "are the most successful way to get an attractive payment."

Is everyone of like mind about what all this means? Of course not.

"I am skeptical that [auto sales] would stay that high through the holiday season given how bad the job market is and given declining household incomes and really weak consumer confidence and consumer expectations," Conference Board senior economist Ken Goldstein tells Hirsch.

Okay, well, you can't deny Detroit this: "Unhittable? No. But Justin Verlander was tough enough when the going got rough." We can at least hope the same applies to the Big Three, can't we?

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