12% market drop reflects economic ills; Demand for SUVs, trucks continues downward spiral
Christine Tierney / The Detroit News
Detroit's automakers and their top Japanese rivals all suffered March sales declines in a market that sank to its weakest level since 2005 as the dual impact of a slowing economy and a credit crunch kept consumers away from showrooms.
The weaker-than-anticipated sales led some auto executives to caution that demand might fall further before it starts to recover.
"I'd like to be able to tell you that the worst is behind us, but I can't give you that assurance," said Jim Farley, global sales chief at Ford Motor Co. "Our sense is, the second quarter may be the most difficult of the year."
General Motors Corp., Ford, Chrysler LLC and Toyota Motor Corp. all posted double-digit declines as the market shrank 12 percent in March.
But Detroit's automakers were the hardest hit by a key shift that occurred in the U.S. market last month as cars outsold light trucks.
The market's fall partly reflected the fact that there were two fewer selling days last month than in March 2007.
On a comparable basis, the annualized selling rate in March weakened to 15.11 million cars and trucks. That is the slowest pace since October 2005, and it compares with a selling rate of 16.29 million cars and trucks in March 2007.
Ford economist Emily Kolinski Morris said consumers have been chilled by grim economic news, ranging from falling payrolls and dropping home values to volatility in the financial markets.
"Consumers uncertain of their employment or financial outlook are unlikely to invest in a home or a new vehicle," she said.
Ford now expects the selling rate for the first half of 2008 to be at the low end of the 15.2 million to 15.7 million range it has forecast.
Ford executives said a shift in demand toward smaller vehicles and smaller engines has accelerated this year, as persistently high gas prices added to the economic gloom.
Overall, Ford's sales fell 14 percent in March, hurt by weak demand for its pickups. But Ford Focus compact sales to individual customers rose 36 percent in March, while retail sales of the Ford Edge crossover were up 35 percent.
During the first quarter, cars and crossovers accounted for 54 percent of Ford's sales, and they represented 57 percent in March. "That is an eight-point shift in one year," said Ford market analyst George Pipas. "That's a wholesale change in the type of products we're selling."
New models prove popular
Sales of GM's new Chevrolet Malibu mid-size sedan more than doubled, and sales of the Chevrolet Impala rose 16 percent. GM's new crossovers, the Buick Enclave, GMC Acadia and Saturn Outlook, also performed well in March, while its traditional truck offerings struggled. Overall, its sales were down 18.7 percent.
"A lot of their volume is in large trucks and SUVs," said Jessica Caldwell, an analyst at online research firm Edmunds.com. She said GM's results were weaker than Edmunds had anticipated.
Chrysler's small Jeep Patriot SUV was popular, while Toyota said its new hybrid Camry outsold the Camry powered by a V-6 gas engine in March.
The Japanese automaker is having a tough time in this market now that it has a complete vehicle lineup that includes many big models. Its sales were down 10.3 percent in March for a fourth-consecutive monthly decline. Toyota has slipped back into third place in the U.S. market behind Ford.
Toyota has slowed production of its full-size Tundra pickup, assembled at plants in Texas and Indiana, and Toyota officials said the new Sequoia full-size SUV spends more than 100 days, on average, on dealer lots.
"We're not immune to the economic cycle," said Bob Carter, group vice president at Toyota Motor Sales USA.
He said Toyota would lower its full-year U.S. auto market forecast to roughly 15.5 million units from 16 million predicted at the start of the year. Toyota then expected a weak first-half, followed by a rebound in the second half of 2008.
"We still see improvement later in the year, but not to a level that will bring us back to 16 million," Carter said.
For the moment GM said it is not changing its forecast.
"There's no question that the industry and the economy are in a weaker state," said Mike DiGiovanni, GM's executive director of global markets and industry analysis.
But he said GM was not revising its forecast for roughly flat sales this year after a recovery in the second half to a selling rate slightly above 16 million vehicles.
"There are a lot of negatives out there but we also see a lot of positives," such as recent interest-rate cuts by the Federal Reserve and economic stimulus measures, he said. "When you put stimulus packages into effect, nine times out of 10 they work."
DiGiovanni said he hopes the first-quarter marked the low point for sales. "We'll watch the second quarter very closely" for signs of economic recovery, he said. If they don't materialize in the next 60 days, GM would probably review its forecast.
Oil price outlook glum
Although GM executives are more optimistic than some of their rivals about the auto market, they are pessimistic when it comes to the price of oil.
"We don't see it coming down," DiGiovanni said. "The reasons are that the U.S. doesn't really drive oil prices any more."
In the past, a slowing U.S. economy would inevitably cause oil prices to fall, but the dollar's weakness -- and oil is traded in dollars -- and the surging growth of the Russian, Chinese and other emerging economies are underpinning high oil prices.
High energy costs will add to regulatory pressures pushing GM to change its lineup. "Pickups will always be there, but we can't have a disproportionate share of our portfolio in the future on" those, said GM sales chief Mark LaNeve.
Among the bright spots in GM's business is the popularity of the new Chevrolet Malibu, he said. "It's transacting almost $4,000 above the previous Malibu," LaNeve said.
"Depending on the data you look at, it's transacting $1,000 or (more) above the Camry," the best-seller in the mid-size car segment.
While the new Malibu offers more content and it costs more to produce than its predecessor, "our transaction price is up far in excess of the increase we had in production cost," LaNeve said.
Sales of the Cadillac CTS were up 43 percent, "and it's transacting about $7,000 more than the previous CTS in its final year," he said.
Honda Motor Co. and Nissan Motor Corp., which have attractive small new cars in their lineups, reported monthly sales declines of 3.2 percent and 3.8 percent, respectively.
However Chrysler, with a preponderance of large vehicles in its product range, saw its sales slump 19.4 percent in March.
The decline was partly due to reduced rental car fleet sales, which are less profitable than vehicle sales to individual buyers through dealers, said Steven Landry, executive vice president for North American sales at Chrysler.
To combat the sales decline, Chrysler will offer better credit terms to subprime buyers who've financed with the automaker before. So called "B-credit" borrowers can finance at 6.9 percent, whereas a year ago, the same borrowers' interest rate would have been 12 percent or higher, Landry said.
"If we've worked with these borrowers before, and they haven't missed any payments with us, we'd like to do what we can to keep them in the family."
On Wall Street, Merrill Lynch cut its 2008 U.S. auto sales forecast from 16 million to 15.3 million and its 2009 forecast from 16.3 million to 16 million. It also cut North American production estimates.
According to a Dykema Gossett PLLC survey released Tuesday, 87 percent of automotive executives have a negative outlook for the U.S. industry for this year.