Carmakers still on road to grim year
A 25% decline in sales of light trucks and sport utility vehicles in July dragged the auto industry to one of its weakest months on record, with results announced by carmakers Friday providing more evidence that 2008 could be among the worst years ever.
Americans bought 1.14 million vehicles last month, 13% fewer than a year earlier. Among the hardest hit companies were those that manufacture a lot of trucks: Chrysler was down 29%, while Ford Motor Co. and Toyota Motor Corp. also declined by double digits, according to Autodata Corp.
But when it came to bad news, it was hard to beat General Motors Corp. GM not only saw sales slide 26% in July, but it also reported its third-worst earnings in history, losing $15.5 billion in the second quarter.
Overall, it was the eighth straight month of sales declines for the world’s automakers. Although weak sales figures have become commonplace, industry analyst George Magliano at forecasting firm Global Insight contended that “it was not simply more of the same,” because July is traditionally one of the strongest selling months for the industry, and carmakers have been offering huge incentives in hopes of boosting sales.
“July was absolutely horrendous,” Magliano said.
Sales of fuel-efficient passenger cars -- up 0.3% industrywide in July -- benefited a select few. Nissan Motor Co. was up a surprising 8.5%. Kia Motors Corp. and Subaru both reported gains above 5%.
Honda Motor Co., which has been strong for most of the year, saw a 1.6% setback in July, which it blamed in part on the fact it did not have enough inventory of small cars such as the Civic to meet demand.
As in recent months, most carmakers pointed a finger at high gas prices, slumping consumer confidence and weakness in pickup and SUV sales, coupled with shortages of small cars.
With July’s report they added tighter credit to the list, saying that tens of thousands of customers who would have been eligible for financing a year ago are being turned away today because lenders are being more cautious.
Another new wrinkle: Automakers are taking huge losses when selling large vehicles coming off leases.
GM said Friday that it took a $1.3-billion write-down associated with leasing losses at GMAC, the automaker’s 49%-held financing arm. The auto and mortgage lender on Thursday reported a $2.5-billion loss in the second quarter as residual values for leased SUVs and trucks plummeted.
And although GM said it would stay in the leasing business, it said it would significantly cut back such financing and raise lease prices, moves also announced by Ford this week. Chrysler said it would get out of leasing altogether.
Brian Allan, general manager of Galpin Motors in North Hills, said he kept dealerships open until after midnight Thursday to offer the last low-cost leases on Jaguars, Volvos and Lincolns to customers rushing to get in before the window closed. “We leased 12 Jags last night when normally we only do two per day,” he said.
Japanese carmakers, which have been punished less for their reliance on leasing thanks to relatively high residual values for their vehicles, stood pat.
“We remain committed to leasing as a valuable part of our business,” said Bob Carter, general manager of U.S. sales for Toyota, adding that 16% of Toyota brand sales and well above 30% of Lexus brand sales are on leases.
That kind of confidence was absent in discussions about the immediate future of the industry. Ford predicted that U.S. sales industrywide for the year could drop below 14.2 million vehicles, compared with 16.1 million in 2007. Toyota put the number at 14.5 million. Through July, sales are off 10.5% from last year, with only 8.55 million vehicles sold.
Analysts feared that 2009 could be worse than 2008, as the still-unwinding housing crunch keeps consumers feeling poor and businesses unable to buy the full-size pickups most of the industry depends on for profits.
Carmakers have reacted by cutting production of trucks and SUVs, shedding employees, closing plants and beefing up output of small cars.
GM estimated that, on an annualized basis, as many as 300,000 sales are being lost because of shortages of popular models. Toyota said it had less than a 10-day supply on several models, including a 1.5-day inventory of its Prius hybrid. Last month, Toyota said it would begin producing the Prius in the U.S. to help meet demand.
A Honda dealership in downtown Los Angeles had only one Civic hybrid on the lot this week, and a salesman was asking $3,000 over the sticker price.
The same night, a Chevrolet dealer in Glendale was brimming with Trailblazer SUVs and Silverado pickups, but devoid of customers.
That has been the story for GM, which has seen year-to-date sales slide by 18% and losses through the first six months total $18.8 billion.
Including the GMAC write-off, GM’s second-quarter charges totaled $9.1 billion, with more than $6 billion tied to worker buyouts and liabilities associated with its former parts division, Delphi Corp., as well as a $197-million charge related to a strike at a supplier.
“Clearly, it was a kitchen-sink quarter for GM,” said analyst Mark Warnsman of Calyon Securities, referring to the company’s apparent desire to get all the bad news out at once. “But they’ve had them in the past, and the kitchen sink keeps coming back.”
Excluding the one-time items, GM had a loss for the quarter of $6.3 billion, or $11.21 a share. Analysts had forecast a loss of $2.62 a share. A year earlier, GM posted a profit of $891 million, or $1.56 a share.
GM said revenue slid 18% to $38.2 billion in the quarter. GM shares fell 84 cents, or 7.6%, to $10.23.
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martin.zimmerman@latimes.com
