10/19/07

Global Car Sales and Oil Prices Rise

General Motors predicted on October 18, 2007, that worldwide sales of motor vehicles would top 70 million for 2007. That's up from 67 million in 2006.

Growth in 2008 is projected to maintain the pace, with 72 million sold. This despite the "subprime mortgage" slump in North America.

GM, which sells more than 50% of its products outside North America, reported record quarterly sales of 2.38 million vehicles, up 4 per cent over the same period in 2007.

The driver is faster growth in emerging markets. GM sales outside the U.S., in markets such as Russia, China, and Brazil, are booming.

Ford and Chrysler are falling behind in the global market race.

But fuel prices are not falling. All these new drivers are lining up at pumps worldwide to bid on a declining supply of petroleum.

Light, sweet crude for the November contract hit a record $90.07 a barrel Friday before softening.

After adjustment for for inflation, oil is only a little cheaper than the "$95" a barrel at the peak in the early 1980s.

The surge above $90 for the first time ever is attributed to "tensions along the Iraq-Turkey border and a falling dollar." Other commentators argue whether the spike is the result of fundamentals or speculative activity.

I think the fundamentals do justify the increase in oil prices. Worse yet, I think the US is in for another round of SUV shock. The downsizing process gets a push each time gas prices peak.

Record oil prices are expected to move through the pipeline, raising gas prices the next few weeks. Industry observers say at least four weeks is required to fully adjust gas pump prices to world oil markets.

But these periodic gas shocks are only the beginning. Honda has cut production due to slow demand in Japan, I hope they can produce enough economy cars to avoid the 2-day inventories of the 2006 mini-crisis.

This is bad news for struggling Ford and reorganizing Chrysler, both dependent on big vehicle sales.