Auto Sales Industry Sees Signs of Hope
September 4, 2008;
DETROIT -- Auto makers reported another big drop in U.S. vehicle sales for August, but an easing in gasoline prices and emerging signs of improvement in the economy have boosted the industry's hopes that it is near the bottom of its downturn.
Sales of cars and light trucks fell 15.5% to 1.25 million last month, down from 1.48 million a year earlier, according to Autodata Corp. The closely watched seasonally adjusted annualized selling rate was 13.7 million vehicles, up from 12.55 million in July, but down from 16.3 million in August 2007, Autodata said.
"There are early indications of somewhat improving conditions," said Ford Motor Co. economist Ellen Hughes-Cromwick, in a conference call with analysts and reporters. She pointed to a decline of about 40 cents a gallon in the price of gasoline, improvement in a key measure of consumer confidence and an upward revision in the federal government's estimate of second-quarter economic growth.
In a separate conference call, General Motors Corp. executives said they are seeing signs that the industry is "at or near the bottom." The consumer "is feeling better," said Michael DiGiovanni, GM's top sales analyst.
Despite the industry's hopes the market won't get much worse, auto executives warned it may still take months, or even a few quarters, before signs of a recovery emerge.
Ms. Hughes-Cromwick said it would be likely to take "several more months" for the housing and credit markets to improve, and Mr. DiGiovanni cautioned that "it's really too early to declare victory on the economy turning the corner."
GM is extending its employee discount incentive deals, hoping to lift sagging customer demand for its trucks and SUVs.
Some forecasters have predicted 2009 vehicle sales will be even with 2008 or perhaps slightly lower.
Almost all auto makers posted sizable sales declines for August. GM's sales fell 20.3% to 307,285 cars and light trucks, though August was its best month of the year in terms of market share, Mr. DiGiovanni said.
GM's performance was helped by a sales campaign offering consumers "employee discounts" on its vehicles. The company said it would extend the offer through the end of September. GM also plans to increase the number of 2009 models carrying the discounts, said GM spokesman John McDonald.
Ford's sales fell 26.5% to 155,117 vehicles. Both Toyota Motor Corp. and Honda Motor Co., whose sales have been holding up better than those of Detroit's Big Three, also saw significant declines. Toyota sales dropped 9.4% to 211,533 vehicles, and Honda's fell 7.3% to 146,855 vehicles.
Chrysler LLC turned in the worst showing, with its vehicle sales falling 34.5% to 110,235. The decline puts Chrysler, once the nation's No. 3 auto maker, in danger of slipping to No. 6, behind Nissan Motor Co. Thanks to strong sales of a new vehicle called the Rogue, Nissan's sale rose 13.6% to 108,493 vehicles.
A Toyota SUV sits on a dealer's lot in Maryland. Toyota's sales fell 9.4%, but held up better than Detroit's.
The drop in Chrysler's sales came despite discounts of up as much as 40% on its Dodge Ram pickup trucks. That suggests rebates and other sales incentives, Detroit's favorite tool for boosting sales, are losing their effectiveness.
Incentive programs "are becoming sort of worn out," said Tom Libby, senior director of industry analysis for J.D. Power & Associates. "It's being perceived as the same old stuff from the same companies. The domestics are being hurt by repeatedly using these programs because the perception by consumers is that they need to do them to get rid of their cars."
Auto makers in recent years have tried to limit their use of incentives, which tend to erode resale values, tarnish brands and condition consumers to hold out for the next big deal. Discounts also carry a risk of pulling consumers into the market before they would naturally buy a vehicle, depressing future demand. But the companies have been forced to return to incentives because of the steep decline in sales in recent months, most notably of pickup trucks and sport-utility vehicles.
The fact that incentives aren't working this time around heightens concerns about the ability of auto makers, particularly the Detroit companies, to clear unwanted inventory and carry out restructuring plans that emphasize building and selling smaller, fuel-efficient cars. Contributing to Detroit's woes are the inability of increasing numbers of Americans to get auto loans and some discount fatigue as consumers sort through a variety of competing deals. "The biggest issue is credit," Chrysler President Jim Press said in an interview. "It isn't the gas mileage of the vehicles turning people off, it's getting credit and financing."
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