US auto sales likely to fall further

yahoo! ^ | 11-Sept-2006 | Jui Chakravorty

[stainlessbanner]

DETROIT (Reuters) - U.S. auto sales have been slipping as domestic automakers have struggled to boost sales amid high gas prices this year -- a trend that will continue into next year, industry executives and analysts said.

Industry-wide sales are down more than 4 percent this year as U.S. automakers such as General Motors Corp. (NYSE:GM - news) and Ford Motor Co. (NYSE:F - news) struggle with high labor costs, loss of market share to foreign rivals, and weakening sales of trucks and sport utility vehicles - typically their largest profit generators.

Both GM and Ford are trying to stem billions of dollars in losses while losing market share to Asian rivals such as Toyota Motor Corp. (7203.T) and Honda Motor Co. Ltd. (7267.T).

Analysts and experts say a softening economy will likely lead to a further decline in vehicle sales in 2007.

"I do have some real concerns about 2007," billionaire investor Wilbur Ross told reporters at the Reuters Autos Summit in Detroit. "It seems to me that the negative dynamics that were present in 2006 will be present for the most part in 2007."

"Pickup trucks correlate historically pretty well to construction trends," Ross said. "So the problem that the home builders are having now very likely will have some impact on that area."

Slowing housing starts can mean slower pickup truck sales, since the vehicles are often driven by construction crews. The auto industry benefited in recent years from the boom in housing refinancing at lower interest rates, but U.S. sales of pickup trucks have fallen nearly 14 percent so far this year. Overall sales at U.S. automakers are down about 11 percent.

"We'll see some more softening in the second half of the year," Erich Merkle of research firm IRN Inc. told Reuters, adding he expects a further decline next year.

Merkle estimates U.S. light vehicle market sales on a seasonally adjusted, annualized basis of about 16.3 million vehicles in 2007, down from an estimated 16.6 million units in 2006.

"To get the right context, I'm not just comparing this year's numbers to 2005, I'm also looking at 2004," Merkle said. "2005 was quite a mess because of volatility created by employee discounts," he said, referring to a massive incentive program spearheaded by GM last summer.

GM sales analyst Paul Ballew in earlier this month said he expected a "moderate falloff" in industry sales in 2006, after the world's largest automaker reported flat August sales compared with a year earlier.

Recent sales declines had been blamed on problems specific to the U.S. Big Three, who rely on trucks for almost 60 percent of their sales. But in August, analysts also cited economic factors like rising interest rates and a slowing housing market -- raising the specter of a deeper, industry-wide slump in the months ahead.

PRODUCTION CUTS

Ford in August slashed fourth-quarter production by 21 percent, while GM more recently cut output for the same quarter by 12 percent, in efforts to align production with demand.

"We don't expect any major uptick from current run rates," Keith Wandell, president and chief executive of auto parts supplier Johnson Controls (NYSE:JCI - news), said at the Reuters summit.

"Clearly as Ford and GM and others announce these production cutbacks, if there's some major inventory adjustments that take place, there may be some pipeline fill back up," Wandell said.

Earl Hesterberg, president and chief executive of dealership chain Group 1 Automotive Inc. (NYSE:GPI - news), said he expects a decline in sales this year, but there is a possibility they may flatten out in 2007.

"I have no reason to believe they will be any better or significantly worse," Hesterberg said at the summit. "We are settling into a range here. There is some hope that interest rates will stabilize or go down a little bit but no one expects them to drop significantly."

Argus Research analyst Kevin Tynan said he expects overall production in the industry to remain relatively stable, but added that U.S. automakers will likely sell less as Japanese and Korean makers cannibalize their sales.

"With high gas prices, people on the fringe will keep moving toward more car-type vehicles," Tynan said. "As that shift happens, the import brands are really there with a much more balanced portfolio of products."

[Lurking in Kansas]

Guy goes in to drool over the Z, drives out in an Altima or Maxima or Armada....

LOL, I drooled over the Z and bought one. The model I bought (an Enthusiast) was cheaper than the top of the line Maxima. BTW, my "family car" is a Maxima!!

[SMM48]

Yet another US auto industry bashing thread.

[Lurking in Kansas]

You are another victim of the pro-Japanese automotive media.

I’m not.

I’m a victim of Detroit.

I’ve owned Oldsmobiles (hmmm… remember them??), Chevrolet, Fords, and Plymouth (hmmm….remember them??). Notice how 2 of those companies are gone today?? ALL CRAP compared to my “Jap” cars, which, BTW, have ALL, except for my Z, been built in the USA.

My opinions are the product of experience, not “pro-Japanese” hype. Thank you very much.

Sorry, I’ve been burned too many times by “Detroit”. I ain’t going back.

[Mr. Jeeves]

Their quality is crap.

Not really true any more...but their reputation is crap, and that's going to take a lot longer to overcome.

Almost every manufacturer today can make a car that will run pretty well for 40,000 miles. And since many people these days trade them in before that time (or lease them) that might be all that matters. But as long as the perception is out there that Ford and GM cars are going to hold up the way the infamous GM "X-cars" did in the early 80's, it won't matter much. Chrysler is way ahead of the other two in design and styling, so if a renaissance is to come for American manufacturers they will be the first beneficiary.

[Mr. Jeeves]

The Corvette can't do that, it just costs too much; people come to drool, see the pricetag and run out of the showroom (if the dealer experience doesn't do it first).

Good point: the ghastly GM/Ford dealer experience might cost them more sales than anything else.

Personally, I'm sticking with Lexus for now - getting a new GS350 this week, in fact. ;)

[absolootezer0]

Yes, and for a whole generation of kids Honda Civics have become the universal hotrod, not the Mustang or Camaro. Those are your daddy's car.

that's because civics were cheap, reliable and had a whole host of bolt-ons, and still got great gas mileage. the camaros for the last 20 years have been over priced and underpowered, and bolt-ons cost as much as a civic. GM has been screwing up big time in the sports car department.
dcx is doing it right, they have the full range of vehicles, and most of their line comes with an SRT- option which really is a sport option, not like GM where the sport "packages" are 90% cosmetic.

[claudiustg]

Also insurance is a lot cheaper! You'd think someone over at Ford or GM would figure this out and compete for their share of the market. But noooo!

And GM actually revamped their SUV line in responce to falling sales, like a few trim pieces were holding back sales. It is absolute slogging stupidity that's responsible for their downfall.

[absolootezer0]

And GM actually revamped their SUV line in responce to falling sales, like a few trim pieces were holding back sales. It is absolute slogging stupidity that's responsible for their downfall.

if they want to revamp for increased sales, there should be more "basic" models. a basic truck/ suv with basic seating, no stereo, powerful engine, 4wd and tow package. take out alot of the stupid crap: dvd players, power, leather, heated seats, electronic climate control, electronic traction control, electronic ride control, wood grain panelling, etc.. knock a couple grand off the price and call it good. its a truck, not a caddy. there's a reason that contractors are buying older trucks.. they don't wanna drop $30k on a truck they're worried about keeping clean and nice. also alot of other people would appreciate it, getting the vehicle they want that they can afford, as well as the people (like me) that are gonna customise their vehicle alot.

[spinestein]

Good post.

[Cobra64]

I agree with your viewpoint on Chrysler. The Benz/Chrysler merger was smart. Maybe BMW should buy Ford after Ford sells off Rover, Aston, and Jag. I hope Ford's new CEO is a "car guy." At a minimum, since he comes from aerospace, he can address quality.

[Cobra64]

Their quality is crap.

You are another victim of the pro-Japanese automotive media.

I'm not a "victim" of anything other than taxes.

I travel all over the USA and Europe. I rent a lot of cars. In a year, I might drive 30-40 different brands and models. Can you say the same?

BTW, I own BMWs.

As for Jap cars, statistics indicate their longevity exceeds domestic. And you may want to understand that Ford owns 40% of Mazda, 100% of Jaguar, some per cent of Rover, GM owns part of Saab, and a partner with an Australian firm to build Pontic GTOs...

Why was Hyundai the first non-domestic producer to offer a 10 yr./100k warranty.

Do your homework before labeling someone as a "victim."

I built this car for fun:

[Cobra64]

I'm inclined to agree with you. I loved the 60s cars. As our generation gets older, it will be interesting if the younger generation will like the retro styling. In that it's look is hybrid/crossover, it may work long term for the domestics. Sales volume will tell...

[Cobra64]

Sweet!

My favorite Jag was the E-Type. It was way ahead of anything at the time. If Jag could convince Ford to put up N million to build an E, they'd sell like hotcakes. The new Jags look like Taurus and Sable.

[Spktyr]

Well, my XKR is the modern E (more or less). They were going to make an F-Type, which would be a more affordable incarnation. The first concept (by Keith Helfet) they showed looked great and people actually lined up to hand over deposits. Ford went and took the design to focus groups, and the second concept looked like a Mitsubishi Eclipse. People demanded their deposits back, Ford couldn't figure out why, and ended up cancelling the whole thing.

DCX figured this one out years ago. If you show a concept car, and enough people line up and say "where do I put a deposit on one," you make it - as close to the concept as possible. That's why they're got a chance. Ford and GM still aren't doing that.

[Spktyr]

They're three years late to the hybrid party, and seven years late to the E85 party. Ford beat them - and so did the imports.

[Spktyr]

The younger generation seems to like some retro styling (Bugs, Mustangs), but could care less about others (HHR), and seems to be more concerned with what's under the hood.

[38special]

...and we laugh at them every friday night at the drag strip.

I think it's more that their parents buy them the Civic because they can't afford the insurance on the Mustang.

[Spktyr]

FYI, Holden (which builds the GTO) is a wholly owned subsidiary of GM, not just a partner. Holden *is* GM Australia.

[Spktyr]

I'm no Civic fan by any means, but the Civic has several other advantages over the Mustang (from the typical buyer's point of view).

1. Cheaper insurance.
2. Far better fuel economy.
3. Bolt-ons are cheap.
4. OEM-installed parts not likely to fall off.
5. Compared to older Mustangs, car can actually stop and turn.

[38special]

One thing that is seriously lacking (besides horsepower) is 'soul'. Sorry, I'm not buying.