Wall Street is starting to talk about a worse year for car sales than analysts had anticipated, but automakers and suppliers may be better prepared to handle falling expectations than they were last year.
Consumers had flocked to bargain events early this year, even for discounts at beleaguered Toyota Motor Corp., where massive recalls have raised quality control issues. But fewer shoppers are showing up at dealerships now and the previously fast pace of fleet sales is starting to tail off, said industry analyst Brian Johnson of Barclays Capital.
FOR THE RECORD:
Auto sales: An article and chart in Wednesday’s Business section about forecasts for fewer U.S. vehicle sales said industry analysts at Barclays Capital estimated that 11.2 million vehicles would be sold in the U.S. this year. The figure is 11.7 million vehicles. —
Originally, the consensus among auto industry analysts was that 11.9 million vehicles would be sold in the U.S. this year, according to Barclays. Now Barclays believes sales will settle to 11.2 million.
Johnson and other analysts blame low consumer confidence for the lackluster sales numbers.
“The problem is that people are still not sure about their jobs, their retirement accounts or the value of their homes,” said Jim Hossack, a consultant at AutoPacific Inc., a Tustin automotive market research firm.
At the start of the year, AutoPacific estimated that sales would reach as high as 11.7 million vehicles this year, but now Hossack thinks it will range from 11 million to 11.5 million.
On Tuesday, Goldman Sachs analyst Patrick Archambault trimmed his U.S. sales forecast this year to 11.7 million vehicles from 12 million. And corporate credit rating service Standard & Poor’s said sales are running 5.5% below its expectations of 11.7 million vehicle sales for the year.
“The recovery is just not as robust or as quick as first expected,” said analyst Chris Hopson at forecasting firm IHS Automotive, which Tuesday downgraded its estimate for annual sales to 11.5 million from 11.8 million.
Auto part suppliers should be able to handle the slower production pace dictated by the poor economy because they entered the year with “conservative production assumptions … and therefore are not at risk,” Johnson said.
Other analysts note that the manufacturers have undergone a massive restructuring over the last 18 months — including the bankruptcies of General Motors Corp. and Chrysler — and are now able to squeeze out profits at much lower sales levels.
“Every manufacturer is looking at their business plans and looking at how they can make money at smaller volumes than what we have seen prior to the recession,” Hopson said. “The break-even benchmark is lower, but it will vary by manufacturers.”
But dealerships may not be able to squeeze out profits on fewer sales.
“It is a difficult time to do business. I think we will see more dealership failures before this is over,” said Jack Nerad, an analyst at auto pricing company Kelley Blue Book. “Some have been just hanging on and just won’t survive to better times.”
Through the first half of this year, the annual sales pace was 11.1 million vehicles. To reach Wall Street’s original consensus estimate, the market would have to turn up dramatically during the second half — to an annual sales pace of 12.7 million vehicles, Johnson said.
But though that number is better than the 10.4 million vehicles sold last year, it pales in comparison to the industry’s average of 16.8 million vehicles sold annually from 2000 through 2007.
Through the first six months this year, sales shifted toward domestic manufacturers and away from the Japanese nameplates.
The Detroit Three — Ford Motor Co. and the post-bankruptcy General Motors Co. and Chrysler — posted combined sales of 2.6 million vehicles, an 18.6% gain, according to Autodata Corp. Their combined market share rose to 45.6% from 44.8%.
Meanwhile, sales at Toyota, American Honda Motor Co. and Nissan North America Inc. rose 14% to just under 1.9 million vehicles, Autodata Corp. said. And that’s only because Nissan was having a better year than its compatriots, with sales up almost 27% so far this year.
The combined market share of the Japanese big three fell to 33.5% from 34.2%, Autodata Corp. said. Standard & Poor’s estimate was even bigger. It said the Japanese automaker’s share declined to 31.8% from 33.9%.
Problems at Toyota account for some of the decline in the market position of the Japanese manufacturers, but Honda also has lagged the industry.
Over the last year, Toyota has recalled about 8 million vehicles worldwide for a variety of problems, including sticky gas pedals and defective floor mats that both were linked to incidents of unintended acceleration.
Although Toyota’s recalls have hurt the brand, Brett Hoselton, an analyst with KeyBanc Capital Markets, said the decline in market share of the Japanese automakers also can be linked to a rebound for the domestic companies from especially depressed levels during the first part of 2009.
“The whole chatter about bankruptcy last year makes the comparisons easier for the U.S. automakers,” he said. “When a company is on the verge of filing for bankruptcy, people aren’t rushing out to buy their products.”
Other aspects of the auto industry look unchanged.
Truck sales dominated the list of the bestselling vehicles for the first half of 2010. Ford’s F-series truck was the top seller, according to Standard & Poor’s. Chevrolet’s Silverado was second.
The next five top sellers were compact and midsize sedans from the big Japanese manufacturers, including Toyota’s Camry, the Honda Accord, Toyota’s Corolla, the Honda Civic and Nissan’s Altima. The Ford Fusion and Chevrolet Malibu sedans followed and the Ford Escape SUV was tenth.