Soaring gas prices put auto sales in the ditch
If these were normal times for the auto industry, Galpin Motors, the nation’s top-volume Ford dealership, would have perhaps 400 F-Series trucks on its lot in North Hills.
On Tuesday, it had 746.
“We’re selling small cars as fast as we can,” said Bert Boeckmann, president of the dealership, noting that gas savers such as the Ford Focus and the Mazda 3 on his Mazda lot were selling like hot cakes. “But one thing I’ve got plenty of is trucks.”
Boeckmann’s problem is emblematic of what’s troubling the entire auto industry in a time of $4-a-gallon gasoline. On Tuesday, carmakers reported that sales in June fell to 1.19 million vehicles, an 18.3% drop from the same month last year, according to Autodata Corp. It was the worst slide yet in a string of monthly declines dating to November.
The automotive sector represents about 4% of the U.S. gross domestic product, but its continuing tribulations threaten to diminish that role, and paint an ugly picture of the economy as a whole, experts said.
“You basically have consumers saying they’re going to pay their mortgages and put food on the table and they’re not going to do much more,” said Ken Goldstein, economist at the Conference Board. “They’re not going to be buying lots of vehicles. They’re not going to be buying much of anything now.”
Through the first six months of 2008, sales were down 10.1% compared with last year. Total vehicle sales nationwide in 2007 were 16.1 million. At the current rate of sales, 2008 totals could be well below 15 million.
June’s total was dragged down by an 18% decline for General Motors Corp., a 28% drop for Ford Motor Co., and a 36% slide for Chrysler, the worst of any carmaker.
The weak results for the Detroit automakers, with lineups rife with gas-guzzling trucks and sport utility vehicles, were not unexpected. But the Big Three had some surprising company at the bottom of the sales board: Toyota Motor Corp.’s sales fell 21%, while Nissan Motor Co. saw an 18% drop.
The chief problem, observers uniformly agree, is the skyrocketing price of oil. As gasoline rose above $2 a gallon and then $3, consumer appetite for the high-margin trucks and SUVs that fueled profits in Detroit in the early part of the decade waned. With the average price of a gallon of unleaded topping $4 nationwide for more than three weeks now, small cars are just about the only vehicles selling. Sales for every category of car and truck were down in June except compact and economy cars, which increased 6.8%.
With a fleet skewed toward gas-sippers, Honda Motor Co. posted one of the month’s few positive results. The Japanese carmaker, which has never built a V-8 engine, saw its sales increase 1.1% in June compared with the same month last year. Germany’s Volkswagen and South Korea’s Hyundai and Kia also showed modest gains.
Honda, which sold 142,539 vehicles in the period, would probably have had bigger gains if it had been able to produce more of its popular Civic and Fit models, which were in extremely short supply. The Civic is now the third-most-popular vehicle in the United States.
“Our factories are doing everything they can to produce the fuel-efficient models consumers are desperately in need of,” said Dick Colliver, executive vice president of American Honda.
That sentiment was echoed at Toyota and even GM, both of which expressed frustration at not being able to deliver the cars consumers were suddenly asking for. Toyota said it had just a one-day supply of the Prius hybrid, which gets 46 miles per gallon, and a seven-day supply of the 32-mpg Yaris. A 60-day inventory is considered normal in the auto industry.
General Motors said sales of models such as the Aveo and Cobalt, both of which average 27 mpg, were hurt by lack of availability. Mark LaNeve, head of U.S. sales and marketing at GM, estimated that the carmaker lost nearly 10,000 sales in June because of small car shortages, and that the industry as a whole lost 40,000.
“For the past 120 days at least, if we’d had more availability we would have sold more of our more popular cars,” LaNeve said.
In days leading up to the June results, some analysts predicted that Toyota would, for the first time, sell more cars in a month than GM. But strong sales of models such as the compact Chevy Cobalt and midsize Chevy Malibu, up 22% and 73%, respectively, helped hold off the Japanese giant.
Carmakers are reacting to the increased demand for smaller cars, as well as rising commodity prices, by raising their own prices. Chrysler said last month that it would raise prices by 2%; a week later GM said it would increase prices by 3.5%.
Sales for both Ford and GM break down to about 60% trucks and 40% cars, while trucks account for 75% of Chrysler sales. Only 32% of the vehicles Honda sells are in the truck category.
All three Detroit manufacturers are working to reduce production of their largest vehicles. GM recently took engineers away from redesigning its full-size SUVs to focus on new small cars; Ford said it would bring the new Fiesta and a redesigned, European-style Focus to the U.S. in 2010. And Chrysler this week said it would close a Missouri minivan plant, along with taking other measures to slow the output of unpopular large vehicles.
Poor showings by Toyota and Nissan in June, too, can be chalked up to their exposure to the suddenly unpopular truck and SUV segments. Both bet heavily on increased appetites for the bigger vehicles in recent years, spending huge amounts of money to build U.S. factories that make workhorses such as the Toyota Tundra and the Nissan Armada.
In June, Tundra sales were down 53%, while the Armada fell 63%.
The title of worst-selling truck in the land, however, belongs to GM’s Hummer. Sales were down 40% through June, and unfortunately for GM, the second-worst-performing marque was its Saab brand.
Last month, GM said it had hired Citibank to help it evaluate a sale of its Hummer division.
Although GM’s shares rose slightly on the news, finishing up 25 cents at $11.75, its value has plummeted of late, hitting a three-decade low last week. With a market capitalization of $6.65 billion, GM is now the smallest constituent of the Dow Jones industrial average. Ford shares, meanwhile, briefly resurgent in April, dropped 10 cents to $4.71, the lowest price in 23 years.
As key as shifting the mix of cars on dealer lots may be, some argue that the unpredictable nature of gas prices plays a much bigger role. Until they stabilize, said Edward Leamer, director of the UCLA Anderson Forecast, “every time you go to a gas station you get slapped in the face, reminding you you’re not wealthy anymore.”
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In reverse
Percentage loss/gain in U.S. June car sales, compared with a year ago
Chrysler: -35.9%
Ford: -27.9%
Toyota: -21.4%
GM:-17.7%
Nissan: -17.7%
Mazda: -7.7%
Honda: +1.1%
Hyundai: +1.3%
Kia: +7.6%
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Source: Autodata
