Normally, the first few weeks of January are festive ones in Detroit. That's when the U.S. auto industry throws itself its biggest party of the year at the North American International Auto Show and debuts 2007 models. The 700,000-square-foot Cobo Convention Center is filled with shiny new cars from all over the world, well-fed dealers, back-slapping executives, excited enthusiasts, and dozens of pretty girls in skimpy clothes.
But this year, behind all the razzle-dazzle and forced smiles, Detroit doesn't have too much to celebrate. The reason is that on Jan. 3, General Motors (GM), Ford (F), and Chrysler all released their December, 2006 sales figures, and they were just as grim as everyone had known they would be. That fact was made even harder to swallow as Toyota (TM) enjoyed another banner year and is now poised to pass longtime industry leader GM this year as the world's biggest automaker by sales.
How bad was it? GM, Ford, and Chrysler declined by 8.7%, 8%, and 7%, respectively, for the year. Toyota was up 12.5%, and Honda (HMC) increased sales by 3.2%, even while a few products like its Ridgeline pickup and Acura RL sedan continued to disappoint. Nissan's (NSANY) sales declined, but the Japanese company's profits are so good, despite a sales drop, that it can weather a soft year.
GM: Top Spot in Jeopardy
The sales results capped what could arguably be one of the worst years ever weathered by Detroit. On top of declining sales, GM had to fend off a forced marriage with Renault-Nissan; Ford brought on a new chief executive, announced two separate restructurings and mortgaged its plants and real estate to raise a survival cash fund; and Chrysler stumbled so badly that there are now rumors that German parent company DaimlerChrysler (DCX) may be forced to sell all or part of it.
GM likely will give up its No. 1 status to Toyota in 2007 as the Japanese automaker has set a worldwide production goal of 9.34 million vehicles. That would exceed the 9.2 million vehicles that GM expects to sell. GM's production for this year isn't set, but its decreased production for North America is enough to offset any upticks around the world. And Toyota tends to sell everything it makes. Some GM executives are philosophical. "We certainly compete with Toyota, and we want to beat them where we can. But it's more important for us to win along with Toyota," said Mark LaNeve, GM's head of sales and marketing, in a recent interview.
Ford finished 2006 with a 17.5% market share, down from 18.6% the year before. But that's nothing. Its share for Ford, Lincoln, and Mercury was down to 14.7% in December. And Ford executives say it expects its share to settle in at between 14% and 15% for the next two to three years. Ford, despite its financial travails, had some bright spots. The Ford Fusion, Mercury Milan, and Lincoln MKZ sold more than 200,000 units. That pales against the 417,000 efficient sales Toyota made last year with just one model, the popular Camry. But it helped Ford post a year-over-year gain in passenger-car sales for the first time since 1993, when its now-retired Taurus was the best-selling car.
Chrysler Cracks Up
Even its normally chirpy public-relations team couldn't mask the disaster 2006 was for Chrysler. The release boasted in its headline a 1% sales gain in December "carried by 10 new product introductions in 2006." Final sales results for the year showed a 7% decline. With 10 new products introduced, sales should have been up, not down, and certainly up more than an anemic 1% in December. Chrysler's sales performance was made worse by the fact that it actually posted tens of thousands of sales it never made—vehicles it produced, booked as sales, but sent to airport parking lots to sit until dealers ordered them. If Chrysler had a true bright spot, it's hard to see what it was, except that competitors still point to the company's minivans as the industry standard, and consider the 300 sedan, finishing its third year on sale, as the benchmark for full-size car design.
Chrysler Chief Executive Officer Tom Lasorda is working on a new plan to put the company consistently back in the black. "We've got to make some substantial structural and sweeping changes to get our sales up and of a higher quality," says Lasorda.
The auto industry finished 2006 with 16.5 million light vehicles sold, down 2.5%. GM Executive Director of Market and Industry Analysis Paul Ballew says he is confident that the industry will do about the same in 2007, though, he says, the second half of the year will be better for sales than the first half. He says that both the housing decline that sapped sales in mid-2006 and higher fuel prices have bottomed out.
He may be overly optimistic. Merrill Lynch (MER), for example, sees another 2% to 3% drop, to 16.2 million cars sold. The strongest companies will be those with new products in the small-car and crossover segments, as consumers increasingly ditch truck-based sport-utility vehicles. Last year, crossovers surpassed traditional SUVs for the first time.
On the luxury front, Lexus was the leading brand last year, with 322,000 sales, up 6.5%. BMW was next with 314,000 (including Mini sales), up 2.2%. Mercedes-Benz posted sales of 248,000, up 10.6%.