Hammered

Gas prices, economy lead to double-digit declines in June

From wire reports

July 2, 2008

The economic slowdown and high gasoline prices hit carmakers hard in June.

Sales fell nearly 28 percent at Ford Motor Co., 21.4 percent at Toyota Motor Corp. and 18.2 percent at General Motors Corp. in June, the worst month yet in a miserable year for the automobile industry.

Chrysler LLC took a huge hit for the month with sales down 35.9 percent.

Sales at Honda Motor Co. and Volkswagen rose about 1 percent. Those two automakers are less dependent on pickup trucks and sport utility vehicles.

Through the first half of 2008, sales were off 14 percent at Ford and 6.8 percent at Toyota.

Sales of pickups and sport utility vehicles have been hit particularly hard as consumers seek more fuel-efficient alternatives. Ford said light-truck sales were down 36 percent in June and 18 percent so far this year.

"Consumer fundamentals and consumer confidence deteriorated as the first half unfolded," James D. Farley, Ford's marketing chief, said in a statement. "The economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty."

At Toyota, car sales dropped 9.4 percent for the month and truck sales slipped 38.9 percent.

Nissan Motor Co. also reported a bad month, with sales off 17.8 percent. The Japanese automaker saw truck sales plunge 36.1 percent and car sales fall 7.4 percent.

Record-high gasoline prices, a housing slump and weak consumer confidence have led to a steep decline in sales of many vehicles, particularly the largest and most profitable ones for domestic automakers. The Ford F-series pickup truck, which has been the best-selling vehicle in the United States for 26 years, was outsold by four fuel-efficient Japanese sedans in May.

Ford recently said it would delay introducing its new F-150 pickup by two months so that dealers could have more time to sell off the current version first.

The automakers increased discounts on many slower-selling models last month in the hopes of closing out the second quarter with some momentum. GM offered six-year, no-interest loans during the final week of June on most trucks and some cars, and some automakers have been discounting large sport utility vehicle prices by more than $9,000.

To help boost sales, Chrysler said it would extend its $2.99 per gallon gasoline price guarantee through July 31. The guarantee lasts for three years, with Chrysler paying the difference between $2.99 and the pump price for 12,000 miles per year. It had been scheduled to expire July 7.

Even with the promotion, which had been in effect since early May, Chrysler's car sales were off 48.5 percent, while truck sales were down 30.1 percent.

Pickups and SUVs were discounted more than 13 percent on average in June, according to Edmunds.com. Yet dealers say the deals have not done as much to draw in customers as huge sales did several years ago.

"Compared to a year ago, we're off 65 to 70 percent," said Preston Mays, sales manager for Superior Chevrolet in Decatur, Ga. Mays said no-interest loans have become less-effective than cash rebates because so many shoppers owe more on their current vehicle than it is worth, and the sour economy means they need a discount more than free financing.

"People need these prices to go down," he said. "They're trying to put gas in the vehicle and feed their families."

George Pipas, Ford's top sales analyst, said SUV sales are probably down for good.

"Our view is that gas prices aren't likely to go down, and more importantly, many consumers have moved on," he said. "We believe that the segment has merit for certain consumers, but is not likely to rebound at any point."

The three Detroit automakers have each said recently that they would significantly cut production of trucks and build more passenger cars in response to the shift in consumers' preferences. Chrysler on Monday announced plans to close a minivan plant near St. Louis and to cut one of two shifts at an adjacent pickup plant.

GM is temporarily halting the assembly lines at seven truck factories in North America before closing four plants permanently within the next three years. Ford says it will build 25 percent fewer vehicles in the third quarter than it did a year earlier and that it now expects to lose money in 2009, the year its turnaround plan, known as the Way Forward, had set as a deadline for returning to profitability.

All of the major car companies have been struggling to keep up with demand for their smaller models. Toyota and Honda dealerships have months-long waiting lists for some cars, including the Toyota Prius hybrid sedan.

Ford shares sank to a 52-week low of $4.41 early yesterday but recovered to finish at $4.71, down 10 cents. They have traded as high as $9.64 during the past year.

GM shares rose 25 cents, or 2.2 percent, to close at $11.75 after briefly falling as low as $10.57 during Monday's session. That was the lowest level for GM since Sept. 22, 1954, according to the Center for Research in Security Prices at the University of Chicago.