For Car Companies, It Was a Year to Forgetby
General Motors (GM) closed out its centennial year having to ask the U.S. taxpayers for loans to survive. Chrysler closed out its first full year owned by a private equity firm by hiring bankruptcy lawyers. And Toyota's (TM) miserable U.S. performance led the Japanese company to project its first worldwide operating loss since the end of World War II, and to the likely ouster of its chief executive.
In short, it was a year, and a financial quarter, to forget. U.S. car and truck sales fell 18% industrywide in 2008, to 13.24 million units, according to Autodata. That's the worst year for vehicle sales since 1992, and the worst year-over-year dropoff since 1974. "The best thing about 2008 is that it's over," said Toyota Motor Sales USA President Jim Lentz.
For the first time since 2000, Americans bought more cars than trucks and SUVs—passenger cars accounted for 50.8% of total U.S. sales in 2008, vs. 46.3% in 2007. Spurred along by the summer spike in gas prices, sales of small cars rose from 17% of the industry total in 2007 to 20.5% last year.
"We used to think that trucks and SUVs had permanently supplanted cars as the majority vehicle in the U.S., but now we think trucks and SUVs will remain in the minority for good," said Ford's (F) chief sales analyst, George Pipas.
Sales fell so sharply toward the end of 2008 that automakers were unable to chop their production fast enough to keep up with dropping demand. In the first quarter of 2008, U.S. sales were humming along at an annual pace to sell 15.6 million vehicles. But the fourth quarter's selling rate, if projected across the whole year, was just 10.6 million.
GM's 2008 sales in the U.S. were down 22.9% from 2007, to a 49-year low. Ford sales fell 21%; Chrysler was off by 30%. And while Japanese rivals outperformed Detroit for much of the year, by yearend Toyota sales were down 16% and Nissan (NSANY) was off 10.9%.
Dismal as December was, for GM and Ford it marked a slight improvement from the two previous months. GM sales were still down 31.4%; Ford's were off 32%. Toyota fell 37%, Honda (HMC) 34%, and Chrysler a stunning 53%.
"It was like two different years in one," said Chrysler Vice-Chairman James Press. Press said the company was on track with its sales and financial restructuring plans in the first half of the year. But the credit squeeze that dried up lending and leasing from the car companies' finance subsidiaries, plus the recession and stock market collapse, slaughtered business in the second half.
GMAC, GM's credit arm, which usually provides loans to about half of the company's customers, was doing just 3% of GM's lending business in October and November. The automaker hopes the recent infusion of capital to GMAC by the Treasury Dept. will make more loans available for car shoppers and offset those sales that are being lost as unemployment rises.
The publicity around the Detroit Three in the past two months has only made car buyers less likely to plunk down tens of thousands of dollars for a long-term investment in a vehicle. Auto CEOs asked the government for loans and lines of credit to stem the cash depletion that threatened to drive GM and Chrysler to Chapter 11 bankruptcy filings in early 2009. A $17.4 billion loan commitment from the Treasury to the two companies came through last month.
"Certainly, all the negative coverage is very hard to quantify," says Mark LaNeve, GM's vice-president for North American sales and marketing. "On the margin, all that kind of discussion hasn't been a help for us."
The surge in gas prices to more than $4 a gallon sent sales of GM's profitable pickup-truck and SUV business down almost 28%. When fuel prices started falling back to earth in the second half, a credit crunch and economic slump hammered sales of any kind of vehicle. GM's share of the overall U.S. market fell to 22%, down from 23.5% a year earlier.
GM, Ford, and Chrysler are rapidly increasing their supply of small cars and car-based utility vehicles. But pickups and full-size SUVs have long supplied the best profits per vehicle, which is why their rapid decline has been so painful. Sales of full-size pickups dropped from 2.21 million in 2007 to 1.61 million last year. GM lost $18.5 billion in the first nine months of the year.
Even Luxury Buyers Are Holding Off
The pain was hardly exclusive to Detroit. Nissan announced last year that it will exit the business of building its own full-size pickup, and instead rebadge Dodge Rams as Nissans after 2010. Toyota sales were down 16% for the year, forcing the company to idle its new pickup plant in Texas for three months. By yearend, the economy was so frozen that Toyota even delayed the start of a new plant in Mississippi that is expected to build its fuel-sipping Prius hybrids.
Often in a recession luxury vehicle sales hold up better than mass-market brands. That's because the wealthy usually still have money in a down market, they often lease cars that need to be replaced no matter what the economy is doing, and they seldom trade down out of luxury brands. But little of that holds today: Mercedes-Benz (DAI) reported that its sales fell 11.2%. BMW (BMWG) cut back in shipments from Germany to the U.S. as it saw sales decline 15.2%. Toyota's Lexus division dropped 21%, and Porsche was off 25% for the year. One bright spot was BMW's MINI division, which gained 28.6%.
Total sales of luxury brand vehicles fell from 1.91 million in 2007 to 1.52 million last year. December was especially bad for luxury: Mercedes sales were down 32%, and BMW fell 40% from the same month a year earlier.
"This is a different kind of recession," says independent marketing consultant Dennis Keene. "It is not a cyclical recession that people anticipated, but rather one that is altering the whole structure of the financial markets, banks, and companies, and I'd expect luxury vehicle sales to be soft for the next three years at least."
Gains for Subaru
Car companies and analysts were left searching for good news anywhere they could find it. Ford noted that it, along with Toyota and Honda, were the only companies in the top six that increased their market share in the horrible fourth quarter. Subaru of America said its U.S. sales crept higher in 2008, poising the Japanese company to be the only major automaker with a yearly sales increase. Subaru's U.S. sales rose by 0.3%, to 187,699 vehicles from 187,208 in 2007, as consumers snapped up its top-selling Forester and Impreza models.
Edmunds.com, a Web site that gives car-buying information to consumers, said there was an unusually large spurt of inquiries on its site and at dealers in the final days of December. Some dealers reported making 40% of their entire month's sales in the final week and that site research on GM vehicles rose more than for other brands. That seemed to follow news that the government was not going to let GM go bankrupt.
"In the current environment I would say that [the burst of late sales activity] is dramatically good news," said David Tompkins, a senior analyst with Edmunds.com.