Car Sales at 10-Year Low
Wednesday, July 2nd, 2008Sales of new cars and trucks plunged to their lowest level in more than a decade in June, as high gas prices and a weak economy kept American consumers away from dealer showrooms.
With the drop last month of more than 18 percent, automakers now expect to sell well below 15 million new vehicles this year, far fewer than the norm this decade of more than 16 million vehicles a year.
Detroit automakers were hit hard. Ford Motor was down 28 percent in June, General Motors was off 18 percent, and Chrysler dropped 36 percent.
Despite its sharp decline, G.M’s results were better than expected, which industry analysts attributed to a sales blitz with offers of zero-interest, long-term financing deals. The cut-rate loans helped G.M. retain its historic position as the top-selling United States automaker over Toyota, whose sales fell 21 percent.
While sales had been steadily declining since the spring, the June totals, announced Tuesday, marked a low point in what is shaping up as an abysmal year in the car business. The sales last month were further depressed because there were three fewer days when dealerships were open compared with a year ago.
“We’re looking at an industry sales rate that is the lowest in over a decade, probably in 15 years,” said George Pipas, Ford’s chief market analyst.
Prospects for a turnaround through the rest of the summer are dimming for reasons beyond the soft economy and $4-a-gallon gas.
Even with some factories running at peak capacity, auto companies cannot meet the surging demand for small, fuel-efficient cars. At the same time, manufacturers are slashing production of slow-selling pickup trucks and sport utility vehicles.
“We’re talking a few months at least before automakers can better match supply with demand,” said Jesse Toprak, executive director of industry analysis for Edmunds.com, an automotive research Web site.
The drastically lower sales have raised concerns about the financial health of the Detroit automakers, which have relied heavily on sales of pickup and sport utility vehicles for profits in recent years.
Shares in G.M. sank to their lowest level in more than 50 years last week, though they rebounded 2 percent Tuesday. Many investors are questioning whether the poor sales will force a cash crisis at the company.
Officials at G.M., Ford and Chrysler have vigorously denied that they will run out of operating cash in the near future.
“Even in a worst-case scenario, we have enough cash and credit lines to last well through the end of 2009,” said a G.M. spokesman, Tony Cervone.
A Ford spokesman, Mark Truby, said the company is well-financed and nowhere close to a financial disaster, like a bankruptcy filing. “With our liquidity, that’s not a concern,” he said.
Still, industry observers believe the two automakers, as well as their smaller rival Chrysler, may need to raise additional capital to weather the sales downturn.
“The health of the business is based on cash flow, and when the cash goes you are in deep trouble,” said David Cole, executive director of the Center for Automotive Research in Ann Arbor, Mich.
If sales continue to slump, the Detroit companies may be forced to cut more jobs, sell assets, or try to raise more capital by borrowing.
The goal, Mr. Cole said, will be to remain financially solvent until the market rebounds and savings from a new labor contract are realized in 2010.
“There is a tremendous sense of urgency simply to get through this period of turbulence,” he said.
The seismic shift by consumers to small cars from large vehicles has blindsided virtually every automaker. Only Honda Motor, where sales rose 1 percent in June, appears to have been prepared. The Japanese automaker’s Fit subcompact nearly doubled its sales during the month, and its Civic sedan set a June record.
By contrast, Toyota executives said they could not meet demand for its Prius hybrid-electric car or its small, fuel-efficient Corolla and Yaris models.
The consumer shift toward smaller vehicles reflects their broad concerns about gas prices and the overall economy, said James Lentz, Toyota’s top sales executive in the United States.
“There are so many things weighing on the consumer’s mind today,” Mr. Lentz said. “It has driven consumer confidence down to a low we haven’t seen since the oil embargo in 1973.”
The decline in housing construction has crippled sales of pickup trucks, too. Sales of Ford’s F-Series pickup plummeted 40 percent in June, and G.M. reported a 24 percent drop for its Chevrolet Silverado model.
Tags: Car sales
