The Car Business Gets Excellent Again (GM)(F)(TM)

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It has only taken a week for the global auto business to rebound from one of its worst periods in decades.

GM (GM) is close to a deal to buy Chrysler. The Federal Reserve may kick in $10 billion to help the companies fire 40,000 people so that the merged company can have better margins. GM’s stock is up on the good news. The fact that no one has wanted to buy a Chrysler product for the last two years does not matter much.

GM lost 11% its global sales in the third quarter, but management there says they may be seeing a bottom. Gas prices are dropping. How that will offset the fact that potential buyers cannot get loans is not certain, but shares in GM and Ford are up almost 20% in four days.

Mazda announced that profits fell 20% last quarter. The company blamed the value of the yen for part of that. It underplayed the drop-offs in sales in its home market and the US.

Toyota (TM) has cut its sales forecasts, but investors may think that those could be revised up again as if there had been a resurrection of the American consumer.

VW did report a legitimate improvement in earnings, but its market share in Europe in incredible and its is currently the leading seller of cars in China.

The GM deal for Chrysler has made it appear to many people that the auto business is okay and that it will get even better next year. That is almost certainly wrong. The US market will only produce 14 million vehicle sales this year. Based on recent trends, that could be worse in 2009. Car companies were already doing badly. How much worse will that get if there are fewer sales to go around?

The auto industry in in a deep hole. Nothing that has happened recently has changed that. An industry trying to cut its way to profitability is not much of an industry at all.

Douglas A. McIntyre