Automakers’ Sales Skid 3%: GM Has Small Rise in September Despite Strike; Ford, Toyota Tumble
By Rick Popely, Chicago Tribune
Oct. 3–Automakers acknowledge that a slow housing market and tighter credit standards are hurting sales, but the industry has not suffered the meltdown some analysts have predicted.
Auto sales fell almost 3 percent in September, to 1.3 million vehicles, beating some expectations.
However, Ford Motor Co.’s sales tumbled 20 percent in September and Toyota’s fell 4.4 percent. General Motors Corp. eked out an increase despite a two-day strike. Honda and Nissan also rose.
Diane Swonk, chief economist of Mesirow Financial, said auto sales were not as bad as some feared for two reasons: First, consumers began putting the brakes on tapping home equity to buy vehicles about a year and a half ago, after home values peaked, diluting the impact. Second, automakers resorted to an old standby, zero-percent financing, to boost sales last month.
Though automakers didn’t splurge on incentives — Edmunds.com said overall incentives declined from August — zero-percent offers abounded on 2007 models in September, as automakers sought to make room for 2008 models.
“When Detroit gives cars away, people are willing to buy,” Swonk said. “People shop for monthly payments, and zero-percent financing is a remarkably strong marketing tool in the auto industry.”
The recent rate cut by the Federal Reserve did not appear to encourage car purchases, but GM market analyst Paul Ballew said it “calmed down the turbulence” in equity and debt markets. Ford economist Ellen Hughes-Cromwick said it would take three to six months to feel any impact.
Bob Schnorbus, chief economist of industry forecaster J.D. Power and Associates, noted that auto sales peaked in 2000, when the industry sold 17.4 million vehicles, long before the housing bubble burst. Sales are on track this year for about 16.2 million, down from nearly 16.6 million last year.
“Auto sales never were in the same kind of bubble like housing was,” Schnorbus said, adding that the credit crunch has had little effect on new vehicles. “The auto industry isn’t nearly as exposed to subprime lending as housing.”
It has hurt some, though. Fewer consumers with incomes less than $75,000 can afford new vehicles because their adjustable rate mortgages are resetting as energy and food prices rise, Ballew said.
“There is clear evidence that economically sensitive customers are exiting the [new vehicle] market more than others,” he said. “Households in that income group face some pretty significant headwinds.”
And Ford’s Hughes-Cromwick points out that subprime borrowers are more likely to buy used vehicles instead of new ones.
“People do continue to demand transportation services through thick and thin in the economy,” she added.
That’s what led to September’s mixed results.
GM posted its second straight month of higher sales, albeit a razor-thin gain of 949 vehicles, to 334,874, despite a two-day strike by the United Auto Workers last week before a tentative four-year contract was reached.
Though GM said it lost production of 30,000 vehicles in the strike, Ballew said it has not raised its fourth-quarter production forecast from 1 million vehicles to make that up.
Ford sold 189,000 vehicles in September, with cars falling 39 percent and trucks 9 percent, and Chrysler LLC fell 5.4 percent, to 159,799.
For Ford, it was the 11th straight monthly decline and puts calendar-year sales at 1.97 million, down 13 percent. It also allowed Toyota Motor Sales to widen the gap between it and Ford in calendar-year sales. Toyota moved into second place, behind GM, in August.
Nearly half of Ford’s 300,000-vehicle decline in 2007 is attributed to the discontinued Taurus sedan, which was being sold only to fleet buyers, about a year ago. But the F-Series pickup, Ford’s most popular model, also is down 13 percent this year, to 537,211, nearly 80,000 less. It said Tuesday it would idle production of F-Series Super Duty models for two weeks starting Monday to manage inventories.
Ford and Chrysler still face UAW negotiations, and Ford’s numbers put it in worse shape as it prepares for talks. Ford, which lost $12.6 billion last year, doesn’t expect a full-year profit until 2009.
“With their sales like they are, this should give Ford some leverage in negotiations,” said Erich Merkle, an analyst with forecaster IRN Inc. “Ford’s needs are much greater than GM’s, and [UAW President] Ron Gettelfinger is going to have to recognize that.
“Ford can’t keep all those plants open, and Ford needs more immediate help on the cost side. I think they have the numbers to support that.”
Chrysler, now privately held, lost $660 million last year and its sales are down 3 percent, to 1.58 million vehicles.
GM lost $2 billion in 2006 but has made money the last three quarters. Analysts expect it to post a full-year profit. In its tentative contract, GM committed to keeping 16 of its 17 U.S. assembly plants open until at least 2012, but Ford is not in a position to make a similar promise.
Ford plans to close 16 North American factories by 2012, including seven assembly plants, but has identified only nine facilities so far, including five assembly plants. Analysts expect that the location of the other plants will be part of the negotiations.
Toyota sold 213,043 vehicles in September, a third straight decline. It cited a strong month a year earlier when sales rose 25 percent to 222,950, its best September ever. Honda rose 9.4 percent, to 127,200, on brisk sales of the CR-V crossover and new Accord. Nissan North America was up 6.7 percent, to 94,269.
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rpopely@tribune.com
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