George S. May Business Blog

American auto sales are down, Wall Steet quite the opposite.

It is interesting how as Detroit plummets, Wall Street soars.

What we have seen in the past month is that as our economy worsens, Congress increasingly can’t let Detroit crumble. To think that one could look at an industry that is suffering sales deficits of between 30 and 40 percent and be pleased is remarkable. America, meet the Auto Bailout of 2009.

Let us review:

General Motors

Their sales of light vehicles has fallen 31%. That means they have sold 220,000 units less. GM shares are up 5% for December.

Ford

They sold 138,000 less than what they wanted (32%). Ford stock is up 4.5% today, trading at $2.57.

Toyota

 They lost 37% of its domestic sales last month, down to 142,000 vehicles. It stayed in the No.2 place ahead of Ford and their shares are up.
The only explanation I can give for Wall St.’s strange reaction to such horrible numbers is that it assumes that the bailout of the car companies will go on well beyond the end of March. (That is the deadline for when they will have to spend the first $17 billion the government sent them.)

Here is a good passage from Douglas A. McIntyre a financial analyst and writer, explaining the above theory:

“The fact that the stocks trade at all after an astonishingly poor fourth quarter is a near-certain indication that the consensus among analysts and Washington is that, with the recession reaching remarkable depths, the nation cannot afford the bankruptcy of one or more of The Big Three and the rolling lay-offs it would move across the industries that rely on car companies for their sales.”

I believe this is encouraging news. In a perfect world, the market will continue in the path that it is headed; meanwhile, the Big Three will get their money for the bailout, restructure according to the strict schedule that was laid out for them and bring American auto production back into the forefront. Unfortunately, we do not live in a perfect world and kinks in the assembly line, pun intended, are inevitable. When those kinks come about, (for instance the UAW won’t agree to certain budget cuts), that is when Wall Street may become nervous once again and we’ll see the market respond negatively.

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