No bottom seen for auto sales

Wednesday, March 4, 2009

All major carmakers hit as U.S. market falls 41%
Bryce G. Hoffman, Robert Snell and Alisa Priddle / The Detroit News

A deepening recession and growing consumer anxiety sent U.S. automobile sales plummeting in February to levels one executive called "unsustainable."

Overall industry sales plunged more than 41 percent, from nearly 1.8 million vehicles in February 2008 to 688,909 last month, putting more pressure on General Motors Corp. and Chrysler LLC as they scramble to convince the federal government they are worth saving. But the dramatic drop also exposed how much the U.S. economy has weakened, making the failure of one or both of the automakers all the riskier.

GM's sales were down a staggering 53.1 percent year over year, leaving it with 18.3 percent of the U.S. market, compared to 22.9 percent a year ago, according to Autodata Corp.

"It's unsettling to our business and, clearly, we hope we're seeing the trough and that we will see growth as the (Obama) stimulus package kicks in," said Mike DiGiovanni, GM's executive director of global market analysis.

"If we don't see that, these are obviously unsustainable levels that are causing almost every major auto manufacturer to look for government aid."

On Tuesday, the federal government launched a $200 billion program to help provide credit to spur consumer borrowing for items including autos.

Ford Motor Co.'s sales dropped more than 48 percent, cutting its market share to 14.4 percent -- a loss of 1.9 points.

Last month, Ford said it believed that retail sales were bottoming out, but reversed course on Tuesday. "We did not reach the bottom," said Ford economist Emily Kolinski Morris. "In today's fragile economic environment, we have to be careful not to miss a signal that conditions are worsening."

She said a number of economic indicators are worrisome, including rising unemployment and declining consumer confidence.

Chrysler did slightly better than its crosstown rivals, with sales down 44 percent. But it put unprecedented incentives on many of its models, raising questions about how it could make money from those sales.

Mike Keegan, Chrysler vice president of volume planning and sales operations, said the carmaker's "year-over-year change in incentives is in line with key competitors."

But data collected by Edmunds.com, which tracks incentive spending by all automakers, show that Chrysler's average per vehicle incentive was thousands more than either GM's or Ford's. Last month, the average Chrysler incentive was $5,556 -- more than $2,000 higher than it was a year ago, and more than $2,000 higher than its crosstown rivals.

Even with such record high spending, Chrysler lost market share, dropping to 12.2 percent from 12.8 percent.

Even Japan's automotive giants, which have fared better than their American competitors, were sent reeling in February.

Toyota Motor Corp.'s sales were down nearly 40 percent, though its share of the U.S. market increased from 15.5 percent a year ago to 15.9 percent last month.

"Consumers have been through a lot right now. Unemployment is a concern, availability of credit is a concern, and there's the perceived wealth factor," said Bob Carter, general manager of Toyota Motor Sales' Toyota division. "These all affect consumer confidence levels."

Honda Motor Co. saw its sales fall 38 percent, but its market share increased from 9.8 percent to 10.4 percent.

Nissan Motor Co.'s sales were off just over 37 percent, but its share of the market edged up to 7.9 percent from 7.3 percent.

Analyst Rebecca Lindland of IHS Global Insight said the fact that all of the major automakers posted poor results in February could actually help GM and Chrysler, which must show they can be viable by March 31 under the terms of their federal loans. She noted that even Toyota's financial arm is asking the Japanese government for financial aid.

"The economy isn't doing these companies any favors," she said. "Even as healthy a company as Toyota was is looking for help. I don't know that we can judge GM and Chrysler too harshly."

Bloomberg News reported today that Honda and Mazda also may follow Toyota in asking the Japanese government for money to lend to U.S. car buyers.

GM, which almost ran out of cash in December before receiving a $13.4 billion federal loan package, is asking the Obama administration for additional loans worth up to $16.6 billion.

That request was predicated on U.S. industry sales of 10.5 million this year, but February's sales rate was just 9.12 million on an annualized basis, the lowest since 1981.

GM is still counting on a modest recovery in the second half of the year to meet the goals outlined in its recent submission to the Treasury Department, DiGiovanni said.

Chrysler received $4 billion in December and is asking Washington for $5 billion more.

Ford is alone among American automakers in not asking for federal aid, but has cautioned that could change if conditions continue to deteriorate. Like GM, Ford still expects a "modest recovery" in the second half of the year, as does Toyota.

"As we get into the late second quarter, early third quarter, we're still optimistic that we're going to start pulling off the bottom," Toyota's Carter said.

GM said Tuesday that it plans to produce 550,000 vehicles in the second quarter of 2009, 34 percent fewer than it built during the same period last year.

Ford announced that it is cutting second-quarter factory output by nearly 38 percent to 425,000 units. Ford was one of the only automakers to cut incentives last month, and it said it will continue to cut production to match actual demand instead of offering deeper discounts.

"We're not going to compromise our plan for short-term gains," said Ken Czubay, Ford vice president of sales and marketing. "This is the way that Ford is going to build for the future and be around for the future."

Chrysler would not disclose its production plans.