Slow Sales Start for Detroit?

Traditionally weak, January sales shouldn't be used to gauge the rest of 2007, but the U.S. auto industry can't afford even one bad month

Rome wasn't built in a day. Nor will Detroit be saved in a month. But, industry executives and analysts alike will be paying close attention when January auto sales are reported in early February, looking for a sign—any sign—of real improvement in the U.S. auto industry.

But preliminary numbers released last week by industry analysts at show that, collectively, sales will likely dip this month to 1.15 million units, down 3.1% from the same time period last year adjusted for one more selling day. That figure would represent a 16.6% drop from the previous month, roughly in line with the typical drop-off in sales from the incentive-laden month of December to quieter January.

Industry-wide sales declines have become commonplace over the past 12 months, as domestic manufacturers suffered from costly setbacks. Throughout 2006, high fuel costs, mounting foreign competition, changing consumer attitudes, nagging quality and reliability concerns, and even a softening housing market were just a few of the thousand cuts that made a significant domestic recovery impossible.

Toyota's Triumph

January is a traditionally sleepy month for auto sales. The holidays, lucrative incentives, and yearend bonuses make December a strong month for sales at large; additionally, December is one of the best times on the calendar for sales of trucks and SUVs equipped to tackle mounting snow. "Total volume-wise, [January] is one of the slowest months of the year, and this year's no different," says Jesse Toprak, executive director of industry analysis with Edmunds. "Call it payback for December."

Nevertheless, Toyota (TM) is likely to continue its forward surge this month. The company, which is expected to permanently supplant Ford as the No. 2 automaker in the U.S. and could steal the production crown from General Motors (GM) globally next year, is expected to post sales of about 191,000 units, an increase of 14.3% from January, 2006. That would represent a drop of 16.2% from the busy month of December. But, market share should rise to 16.6%, up from 14.1% in January, 2006 and up from 16% in December, 2006.

That will be the biggest set of gains, however, as other Japanese manufacturers are expected to post mixed results. Edmunds forecasts that Nissan (NSANY) will have sold 78,000 vehicles, down 1.4% from same period last year. Honda (HMC), meanwhile, should move about 108,000 units, an increase of 5.3% from January, 2006. Both companies will likely make razor-thin gains in market share.

Domestic Downer

Unfortunately, that likely won't be the case for domestic manufacturers. Edmunds estimates the combined monthly market share for DaimlerChrysler's (DCX) Chrysler unit, Ford (F), and GM at 52.4%, a slide from 57.1% in January, 2006. Chrysler and Ford will both likely witness erosions of their monthly and year-to-year market share, with GM actually eking out a slight increase from last month.

For Ford, though, that's where the middling figures end. The company nabbed stark headlines around the country last week thanks to record-setting year-end losses for 2006 of $12.7 billion, $5.8 billion in the fourth quarter alone. Ford's North American automotive operations reported a pretax loss of $6.1 billion, compared to a loss of $1.5 billion in 2005.

Earlier this month, Ford Chairman William Ford Jr. told BusinessWeek that new Chief Executive Officer Alan Mulally's restructuring would, in fact, amount to a "reckoning," a long way from the triumphalism of the "Bold Moves" public relations campaign launched with the company's previous Way Forward reorganization plan (see, 1/9/07, "Mulally: Ford's Most Important New Model").

Analysts Gloomy

This month, Ford sales are likely to be off by 17.5%, nearly double the next biggest loss at GM. The company should sell around 174,000 units, down 22.7% from the preceding month and the biggest December-to-January loss of any manufacturer. Market share would drop to 15.1% from 17.7% in January, 2006.

Worse yet, analysts don't see much to get excited about in Ford's 2007 product portfolio. The Ford Edge (see, 10/18/06, "First Drive: Ford's Edge") and Lincoln MKX (see, 1/17/07, "Lincoln's Budget Bling Crossover"), two crossover vehicles that pair SUV practicality with car-like handling and fuel economy, have just become available to consumers. But at 2,201 units in December and an expected 2,500 by the end of this month, those models are a long way from making a dent in the bottom line. "Ford is hurting on so many fronts right now, you can't ask the Edge to save the company," says Erich Merkle, director of forecasting at IRN Inc., a Grand Rapids (Mich.)-based automotive research group.

Chrysler, meanwhile, is expected to post declines of 6.5% on sales of 151,000 vehicles. That would represent a 20.5% drop in sales from the previous month and a marginal market-share decline to 13.2% from 13.6% in January, 2006. The company's upcoming redesigned Town & Country minivan, shown in Detroit this month, earned applause from analysts. It could buoy results in 2007 as Ford and GM largely abandon the segment. But the company's heavy reliance on increasingly unpopular trucks and SUVs is still cause for concern.

Other Strong Returns

GM is the sole domestic anticipated to produce positive news on multiple fronts. Though sales are expected to be down by 9.4% to 277,000 vehicles, the company will likely nudge its market share up to 24.1%, from 23.5% in December, 2006. On the strength of new products, notably the Lambda platform-based Outlook and Acadia, analysts expect the company's GMC and Saturn brands to provide particularly strong returns for the month, up 13% and 17%, respectively. "Saturn is probably going to be one of the best performing brands in 2007," says Toprak.

What's more, new full-sized pickups from Chevrolet and GMC could prove popular with consumers, even as overall sales in the segment drop. Toprak suggests that, with those new products, GM could nab large-truck market share from Ford this year, increasing it to 45% from 40% by the end of 2007. Toyota's brand new Tundra (see, 1/30/07, "First Drive: 2007 Toyota Tundra"), meanwhile, could move its market share up to 7% from 5%, also largely at the expense of Ford and Chrysler.

But don't expect a domestic resurgence built on pickup sales anytime soon. Volatile gas prices aside, the softening housing market could have nasty repercussions. Big-pickup sales closely track housing starts, says Merkle. Year-over-year, both are down more than 10%. And that's not good news for anybody in Detroit.

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