Good News for U.S. Auto-Makers: Things Could be Worse

(MoneyWatch)  Half-empty or half-full? That is the question raised by the most recent auto sales figures.

According to the benchmark auto-industry source, AutoData Corp., the SAAR (or "Seasonally Adjusted Annual Rate") for February was 10.4 million. That was an improvement compared to last year's figure at this time of 9.2 million. But considering that U.S. auto sales were 16.2 million as recently as 2007, 10.4 million still represents a deep trough. By the way, the SAAR does not mean that 10.4 million cars and trucks were sold in February. That would be nice, but ridiculous (do the math: that would add up to annual sales of more than 100 million). The SAAR is a forecast. It means that if sales were to continue at that rate for the year, they would add up to an estimated 10.4 million. February sales were 780,000.

The "seasonally adjusted" part of SAAR reflects that auto sales vary, with January and February the slowest months. If you simply multiplied February sales by 12, that would come out to 9.4 million. Adjusting for the fact that February is typically a slow month, the SAAR forecast comes out to 10.4 million.

Monthly auto sales usually peak in the early fall, as automakers start to introduce new models and mark down leftover ones. Both factors serve to stimulate demand. There's a smaller but significant peak in December tied to year-end discounts.

Using sales history as a guide, the SAAR attempts to flatten out the seasonal variations. There's art as well as science in the analysis, because on top of normal seasonal variations, there are occasional spikes.

For instance, last year's Cash for Clunkers program created a sales spike in August 2009 (see chart). Earlier spikes included a year-end rush in 1986, caused by a change in tax laws that took effect Jan. 1, 1987. Zero-percent financing created a stampede to dealerships in 2001, following the 9-11 terror attacks. Four years later, "Employee Pricing for Everyone" caused a rush in 2005.

Such anomalies average out over time, but in the short run, analysts sometimes have to take year-ago comparisons with a grain of salt, when they know certain months were inflated by big discounts, or depressed by other events.

It's useful to keep this bigger picture in mind when you read reactions to a single month's worth of sales. February sales were better than a year ago, but that's not saying much. The sales pace needs to pick up if U.S. auto sales are going to reach forecasts of more 11 million in 2010. At least it's early in the year, with the best months still ahead.