High gas prices that are here to stay, a softening housing market, and too many sport-utility vehicles and trucks on dealers' lots are all conspiring to keep Detroit's auto sales in the slow lane, while most of the Asian and established European luxury brands continue to increase sales and market share.
August, when automakers had 2006 on deepest discount to make way for 2007 models, was hard on Ford (F) and DaimlerChrysler's (DCX) Chrysler Div., both top-heavy with trucks and SUVs. On a positive note, General Motors (GM) managed a gain and is showing progress in its quest to increase retail sales to consumers as it reduces its dependence on rental and corporate fleets.
Toyota (TM) and Hyundai both posted big gains, while Nissan (NSANY) and Honda (HMC) both reported sales dips in August.
GM, the world's biggest carmaker, said it sold 363,521 light vehicles in August, up from 349,806 a year earlier, a gain of 4%. Car sales rose to 156,723 from 150,900, while sales of light trucks, a category that comprises SUVs, pickups, and minivans, rose to 206,798 from 198,906.
Year-to-date, GM's retail sales to consumers are up almost 200,000 units. GM in the past year has lowered prices across the board in hopes of attracting customers and lowering sales incentives. GM said that its incentive spending is down $900 per vehicle from last year, while the rest of the industry's is essentially unchanged.
TOUGH COMPARISONS. While some of GM's brands posted ugly overall sales declines (Buick down 18% and Chevrolet down 12%), sales and marketing chief Mark LaNeve said the numbers he is fixed on are retail sales "to real customers" as opposed to fleet sales. In that department, Buick was up 10%, Cadillac was up 17%, and Chevy was up 8%. "We are going to suffer tough comparisons to last year on overall sales while we focus on retail sales, but we are doing the right thing for the company and for profits long term," said LaNeve.
Ford, amid a financial crisis-driven restructuring, posted a disappointing 12% decline from the same month a year ago, reflecting plunging demand for SUVs like the Explorer (see BusinessWeek.com, 9/01/06, "Ford's Explorer Loses Its Way") and a downturn in pickup truck sales. Chrysler, with more than half its models in the SUV and truck category, saw a decline of 4.2%.
Ford is selling about one-third of its Ford, Lincoln, and Mercury vehicles to rental and company fleets, and Chrysler, though it doesn't report specific sales, has also been sending an unusually high number of vehicles to fleets to help make up for falling retail demand.
Besides gas prices, sales are also being hit by the deflation of real estate and rising interest rates. Between 2000 and 2005, consumers in many parts of the country enjoyed enormous gains in the value of their homes, with some coastal markets showing annual gains of as much as 20% to 25%.
That, combined with low rates, saw consumers—especially middle-income consumers—refinance homes at a dizzying rate, taking tens of thousands of dollars in value out of their homes. That not only helped more people to buy second and third cars but enabled them to pony up for higher-priced cars and SUVs. That trend is over, and Detroit carmakers in particular are experiencing a "morning after" effect.
ASIAN CROSS-CURRENTS. To cope with what automakers believe is a permanent decline in demand for midsize and large SUVs due to higher gas prices and changing fashions, GM, Ford, and Chrysler are all dialing down their production this fall. In Chrysler's and Ford's cases, the reductions are historic and will play havoc with the companies' yearend revenue and profits.
"The people who don't need a truck or SUV for business, who previously bought one as a discretionary purchase, are trading down and out of the category with greater frequency to smaller cars," says George Pipas, Ford's director of sales analysis.
Sales of Asian brands are mixed, with Toyota and Hyundai setting the pace. Toyota reported a 13% sales gain, helped by surging demand for its small, fuel-efficient cars such as Corolla, Yaris (see BusinessWeek.com, 6/13/06, "The Judgment of Yaris"), and Scion xA and xB, plus heavily discounted sales of Tundra pickups, which will be replaced by an all-new Tundra design in a few months.
In a trend reversal, Honda has been seeing demand for its passenger cars like Accord and Civic drop, while discounting has been keeping sales of the Odyssey minivan, the CR-V, and Pilot SUVs brisk. Nissan sales have been slipping because of skimpy new products, soon to remedied by a redesigned Altima sedan. Hyundai, Kia, and Suzuki also had a strong August.
Luxury and premium brands are mostly holding their own, but some are showing signs of weakness, selling into headwinds of fewer company bonuses, corporate buyouts of older employees with a preference for these kinds of vehicles, and higher rates.
BMW brand sales are up 5% on the year but were off 12% in August. Lincoln sales were down 10% last month and 2% on the year. Jaguar sales are down more than 30% on the year. Land Rover sales were down 20% last month but are up 9% on the year.
Mercedes-Benz was up 7% over August, 2005 and is up more than 13% on the year, boosted by sales of an all-new S-Class and the addition of the new R-Class crossover. Sales of Mercedes' other lines that don't have new models, though, were off by double digits last month and are down for the year.