Wednesday, November 2, 2005

Auto sales hit 7-year low

Big 3 see Oct. market share fall to 52.4 percent as worried consumers shun GM, Ford pickups, SUVs.

By Christine Tierney / The Detroit News

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U.S. auto sales tanked to a seven-year low in October as the backlash from the summer sales boom hit with greater force than expected.

Detroit's automakers, who rode employee discounts to record sales in the summer, were the big losers last month as the selling rate for U.S. cars and trucks sank to its lowest point since August 1998.

Their combined share of the U.S. market shrank to a new low of 52.4 percent last month from 57 percent a year ago and 70 percent in 1999 when American consumers were snapping up light trucks and SUVs.

"We expected a difficult month and it was," said Paul Ballew, chief market analyst at General Motors Corp.

GM and Ford Motor Co. sales fell about 26 percent last month, as shaky consumer confidence, rising interest rates and worries about gas prices exacerbated the hangover following the generous summer discounts.

Among the Japanese automakers, Toyota Motor Corp. and Honda Motor Co. reported a slight rise in sales, while Nissan's sales dropped 16.5 percent. Toyota captured 15.1 percent of the U.S. market, its highest ever.

The October figures capped a terrible month for the U.S. car industry that included a bankruptcy filing by Delphi Corp., the largest U.S. auto supplier, reports of big third-quarter losses at GM and Ford and the United Auto Workers' concession to accept reduced health care benefits from GM.

Auto sales soared in the summer after Detroit's automakers extended generous employee discounts to all.

But industry managers and analysts had warned that a drought would follow because the gains included many sales pulled forward from future months.

"This employee-discount program was a zero-sum game," said auto analyst David Healy at Burnham Securities.

"We'll see sales declines until we pay back the excesses from early summer."

Auto executives had hoped the market would recover in November but were guarded in their outlook.

"We may not get there in November," said George Pipas, Ford's market analyst.

"I would have liked to see an improvement at the end of the month to enter November with momentum, but I didn't see that except in new cars," Pipas said.

Ford's Fusion and other new midsize cars got off to a strong start, but sales of its traditional truck-based sport utility vehicles sank 50 percent. The Ford Explorer was down 59 percent.

GM suffered a 30 percent drop in truck sales in October.

The U.S. automakers' results would have been worse if they hadn't stepped up sales of vehicles to fleets, such as rental car companies and government agencies.

GM said 32 percent of its sales in October were fleet business, which is typically less lucrative for car companies than sales to dealers and individual consumers.

Buyers who purchase vehicles in large volumes expect bigger discounts and spend less on options.

So far this year, GM's fleet sales account for a quarter of the total. Excluding fleet business, Ford said its October sales were down 34 percent.

"Nobody is happy with the retail numbers inside these industry numbers," said Gary Dilts, senior vice president of sales for DaimlerChrysler AG's Chrysler Group.

Chrysler Group sales fell 3.1 percent in October, according to Autodata Corp.'s unadjusted figures.

But the Auburn Hills automaker said its retail sales were down by double-digits.

To stoke demand, Chrysler will offer a $1,000 cash bonus across its Chrysler, Dodge and Jeep ranges.

"We've got a consumer out there whose confidence is slipping and who is concerned about their monthly budget," Dilts said.

"We've made the incentive proposal very simple and very easy to communicate."

Across the industry, incentives were down in October, with Ford's Pipas saying their effectiveness had diminished.

"Unless we get some indication that the consumer is ready to respond to a stronger offer, increasing incentives is going to be like pushing on a string," Pipas said.

Sales of Asian brands fell 4.3 percent, compared with a 10.8 percent drop in European nameplates and a 20.7 percent decline for the traditional Big Three.

Overall, sales were down 14.1 percent, but auto executives cautioned that the October figures should be taken in the context of what has been a robust year.

For the first 10 months of the year, sales are up 1.2 percent as the summer gains and fall declines largely canceled each other out.

But some sales trends augur poorly for the two largest U.S. automakers, which are struggling in their home market.

GM has lost more than $4 billion this year on its North American operations and Ford is also losing money.

On Tuesday, GM's debt sank deeper into junk status after Moody's Investors Service cut its rating on GM's long-term debt to B1 from Ba2.

It said the outlook was negative, citing doubts about GM's ability to push through a comprehensive restructuring, stem the erosion in its market share and regain profitability in North America.

The U.S. automakers' most lucrative vehicles are trucks -- and truck sales are falling faster than the market as a whole.

Truck sales were down 22 percent in October, dragged down by slumping demand for large SUVs.

Large SUV sales have been weak all year, partly because of the spike in gas prices and also because GM's range of large trucks and SUVs is nearing the end of the model cycle.

Sales of the largest SUVs have fallen 16 percent in the first nine months of this year, according to Global Insight Inc., a Lexington, Mass., forecasting firm.

However, sales of crossovers -- car-based SUVs -- are up 12 percent.

GM, which is rolling out new large trucks in the first quarter of 2006, is counting less on these vehicles to turn around its fortunes and spotlighting some of its smaller and more fuel-efficient vehicles.

"We're not ignoring the fact that some shifts have occurred in terms of consumer attitudes," Ballew said.

"It's important for GM to tell our fuel-economy story. We're trying to deal with some perceptions in the marketplace where we're not receiving full credit for how well we're doing in fuel economy."

GM and Ford are already slashing costs and both are expected to announce further restructuring moves this year to bring their vast North American production networks in line with their declining market share.

GM's share of the market slumped to 22 percent in October and stands at 26.2 percent for the year to date -- half its market share in the early 1960s.

Demand for pickup trucks, which are frequently purchased by business owners, is holding up, and many customers are switching to midsize and smaller SUVs and crossovers.

Many consumers are also rediscovering cars. They now account for 49 percent of the U.S. light vehicle market, up from 43.8 percent a year ago.

Pickups, SUVs and minivans make up 51 percent of total sales, down from 56.2 percent.

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.