July 2, 2008

Automakers Can’t Fulfill Small-Car Demand

By Thomas Content, Milwaukee Journal Sentinel

Jul. 2--Automakers couldn't make enough cars last month to keep up with consumers' newfound love of anything that gets good gas mileage.

Gas prices near or above $4 a gallon for much of the month resulted in double-digit sales declines for most automakers in June. Shoppers avoided large SUVs and pickup trucks and couldn't find enough high-MPG cars, analysts said.

Both Toyota and General Motors were unable to keep up with demand, as Toyota ran into short supply of its popular Prius hybrid and GM couldn't meet demand for cars such as the Chevrolet Cobalt and crossovers such as the Buick Enclave.

GM Vice President Mark LaNeve estimated that 40,000 more fuel-efficient cars would have been sold last month if carmakers had been in position to produce them.

In the quarter that began Tuesday, GM plans to produce more cars than trucks, probably for the first time in eight years. That's in sharp contrast from a year ago, when gas prices were below $3 a gallon and GM produced twice as many trucks as cars in the third quarter.

"People have always viewed us as a truck-maker," said GM spokesman John McDonald. "This is a watershed event."

Wisconsin is one of the casualties of GM's shift in plans, as the company announced last month that it will halt production of SUVs at its Janesville plant by 2010, if not sooner. The plant is currently shut down until late July, when it will resume production with one shift only. The factory will be idled again for 10 more weeks between August and the end of the year.

By contrast, a Michigan plant that makes crossovers, or small sport utility vehicles, is operating with three shifts, and GM is expanding production to three shifts at its car factory in Lordstown, Ohio.

Sales of the large SUVs made in Janesville fared better in June than in prior months, LaNeve said.

Sales of Chevrolet Suburbans were nearly the same as a year ago, while sales of Chevrolet Tahoes fell 9.8 percent. Sales of GMC Yukons were down 10 percent and Yukon XL sales dropped 17 percent. Year-to-date, sales of the various models are off 27 percent to 36 percent from the first half of 2007.

Reporting sharp year-over-year sales declines were GM, down 18.5 percent; Toyota Motor Corp., down 21.4 percent; Ford, down nearly 28 percent, and Chrysler, down 36 percent. Honda, which relies less on sales of trucks, posted a gain of 1.1 percent in June.

GM and Chrysler executives said that the June results appeared worse than they are because the companies have moved aggressively to scale back on sales of vehicles to rental-car companies. These so-called fleet sales masked strong retail demand for fuel-efficient models in the month of June, they said.

The auto industry was unprepared for the sudden jump in gasoline prices, said Alan Baum, director of automotive forecasting with Planning Edge in Birmingham, Mich.

"The vehicles that people want are in short supply because the industry has turned on a dime in terms of demand, and supply can't quite handle that."

For the second straight month, Ford's F-Series large pickup, perennially the best-selling vehicle in the U.S., was outsold by four cars: Toyota's Corolla and Camry and Honda's Civic and Accord. But Toyota's June sales were also hit hard.

Through the first six months of the year, sales of trucks have fallen 16 percent while sales of cars have fallen by less than 2 percent, according to Ward's Automotive.

Dearborn, Mich.-based Ford blamed its latest sales decline on high gas prices and low consumer confidence.

It reported steep drops in June sales of pickup trucks and sport utility vehicles, including a 41 percent year-over-year decline for the F-Series pickup and a 52 percent drop for the Ford Explorer SUV.

George Pipas, Ford's top sales analyst, said SUV sales are probably down for good.

"Our view is that gas prices aren't likely to go down, and more importantly, many consumers have moved on," he said. "We believe that the segment has merit for certain consumers but is not likely to rebound at any point."

At GM, the Chevrolet Silverado, GM's best-selling vehicle, declined 24 percent while Chevy Cobalt car sales rose 22 percent. Automakers may get double the profit from the sale of a pickup over a small car, according to Citigroup analyst Itay Michaeli.

A lack of supply of Ford Focus compact cars and other sedans was a "big factor" in the company's sales fall, said Jim Farley, vice president of marketing at Ford.

At month's end, GM remained ahead of Toyota as the overall U.S. sales leader.

Chrysler said it's seeing strong demand for the crossover Dodge Journey as well as cars. But company executives don't foresee the industry rebounding before late this year.

Customers' growing taste for cars means stability for workers at the Chrysler Kenosha Engine Plant, which makes the 3.5-liter V-6 engines for the new Journey as well as engines for several cars, including the Dodge Avenger and Charger and Chrysler Sebring and 300.

Bloomberg News and The Associated Press contributed to this report.


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