Tuesday, January 26, 2010

Good News and Bad News in Auto Industry

U.S. auto sales are up this month, but this is not good news for auto makers. The increase is coming as drivers buy more used cars — and they are paying more for them too, according to AutoLoanDaily.com. As for new car sales, indications so far are for January totals that are lower than December, and lower than last January, though not drastically so. The surprisingly good results in car sales from December mostly resulted from after-Christmas price cuts, and after those sales, there were not so many buyers left for January. Some analysts are predicting January new car sales to come out slightly higher than December or last January as the pace of sales picks up this week, but those projections appear not to have adjusted for the surprise move of car buyers from new cars to used cars this month.

The increased interest in used cars is good news for dealers, however — or at least for the technicians they employ. With used cars selling at higher prices, dealers can sell more used cars by repairing used cars that have minor defects. Used cars are also a good deal for buyers. They cost considerably less than new cars, and the buyers will likely want to trade them in for new-generation car technology within a few years anyway.

The really good news for the auto industry today came in the form of an announcement of an agreement in principle for General Motors to sell the Saab brand to Dutch-English novelty-car maker Spyker. Previous talks had broken down, apparently because Spyker was too small to buy Saab’s factories, but with a pending €400 million loan from the European Investment Bank, with a guarantee from Sweden, it will be able to keep the factories going.

General Motors had started the process of shutting down Saab, and Saab still will have to scale back somewhat to adjust for the global decline in auto sales. Neither Saab nor Spyker has a history of making much of a profit, but by shedding the management practices of its old owners at General Motors, Saab ought to be able to operate much more efficiently. The deal is even better news for General Motors; the half-billion dollars that it gets from the deal (assuming it can eventually sell the stock that is part of the payment it is getting) significantly improves its chance of surviving.