Tuesday, March 4, 2008

Auto sales slide as economy takes toll

Trucks, SUVs take biggest hitFord, GM to cut output; Chrysler will roll out deals

Sharon Terlep / The Detroit News

The entire U.S. auto industry got hammered by a tough economy in February, but Detroit's Big Three automakers bore the brunt of the sales downturn as consumers shunned big trucks and SUVs or avoided showrooms altogether.

Battered by the economic forces that have been looming for months -- anemic home construction, high fuel prices and shaky consumer confidence -- domestic carmakers on Monday said they're taking action to stem the sales decline. General Motors Corp. and Ford Motor Co. announced impending production cuts, while Chrysler LLC will roll out sweeter deals to consumers.

"It's been an especially challenging first couple months of the year," said Ford marketing chief Jim Farley. "All of our predictions have come true."

Demand for GM cars and trucks fell 12.9 percent last month, the company's biggest year-over-year sales decline since July, while Chrysler LLC sales plummeted 14 percent. Ford Motor Co. fared the best of the domestic automakers, but still took a 6.6 percent hit in a market that was down 6.3 percent overall, according to Autodata Corp.

Among Asian manufacturers, Toyota Motor Corp. sales dropped 2.8 percent, but Honda Motor Co. sales rose 4.9 percent and Nissan Motor Co. got a 1.2 percent bump, helping all Asian automakers increase their collective share of the U.S. market to 41.8 percent, from 39.4 percent in February 2007.

Ford said it plans to build 10 percent fewer vehicles in the second quarter of 2008 compared to a year ago to bring production more in line with shrinking demand. GM forecast a 5 percent production cut in the second quarter.

Newly private Chrysler does not disclose production forecasts but on Monday announced plans to bolster incentive spending 5 percent this month.

"There is clearly a lack of confidence in spending on higher ticket items," said Steven Landry, Chrysler's executive vice president of North American sales. "Fuel costs are going up, you have the effects of the housing bubble, and it's starting to peek through to the automotive industry."

The U.S. Commerce Department reported last week that inflation-adjusted consumer spending is at its weakest since the winter of 2001, when the United States was emerging from the last recession. On Monday, the price of oil rose to an inflation-adjusted high of $103.95 before settling up 61 cents at $102.45.

Making matters worse for Detroit is the slumping sales of highly profitable pickups and full-size SUVs as high fuel prices make gas-friendly cars more appealing to jittery consumers.

GM truck sales fell 19.2 percent and Chrysler's dropped 23.1 percent. If not for some hot-selling small cars, including the Chevrolet Cobalt, Dodge Caliber and Ford Focus, last month's sales numbers would have been even uglier for the Big Three.

Small-car sales up

Competing in the small-car market is important as the segment grows, its popularity rising as Americans come to accept that high gas prices are here to stay. Small-car sales were up last month 4.9 percent from February a year ago, and have increased 5.7 percent this year.

But the trend is still painful for the truck-dependent Big Three. A Cobalt sedan, for example, retails for about $14,000, while the price tag on a base Chevy Tahoe SUV is $35,000. Even after last year's historic cost-cutting labor deals between the United Auto Workers union and the Big Three, the companies continue to earn more modest profits on those small vehicles compared to foreign-based rivals with cheaper labor costs.

"The vehicles may help with the showroom traffic; they don't help significantly the financial bottom line of the companies," said Jesse Toprak, chief economist at car shopping site Edmunds.com. "But they are mitigating a worse decline by creating some momentum in the cheaper end."

Ford, however, touted the success of its redesigned Focus that has been reeling in younger buyers. GM reiterated its promise to become a bigger, more respected player in the car market.

Incentives aimed at trucks

Even so, auto companies remain determined to keep moving their trucks.

GM Sales chief Mark LaNeve said the automaker likely will continue with incentives targeted at the biggest vehicles. Farley said Ford will tout the improved fuel efficiency of its redesigned F-Series pickups when they hit the market this fall. To perk up slumping truck sales, Chrysler is offering a no-charge Hemi-engine upgrade on its Ram 1500 pickup -- a $945 option.

Even car-heavy Toyota is no exception to the incentive game; the Japanese automaker has offered aggressive discounts on its remade Tundra pickup.

Amid the bleak news, new models continued to be a bright spot for Detroit. Sales were strong for GM's new Chevrolet Malibu and its crossover SUVs. Ford saw an 11 percent increase in sales of its redesigned Focus, as well as strong buying of its crossovers, the Ford Edge and Lincoln MKX. Chrysler's Town and Country minivan, redesigned last fall, got a 1 percent bump.

Auto executives were hopeful that last month could turn out to be the bottom for the struggling U.S. auto market. Car and truck sales have been running below the industry's trend for more than two years and are expected to hit a 10-year low in 2008.

Analysts said a federal economic stimulus plan could help bring consumers back to showrooms, and pent-up demand from shoppers who've been putting off buying a new vehicle could begin to surface later this year.

Said GM sales chief Mike DiGiovanni: "We think this quarter is the trough of the downturn."

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