Don’t miss Orioles players, John Means & Paul Fry, as they guest host at our Brews and O’s event!

Detroit autos are hit again

The Baltimore Sun

The monthly sales reports released by the world's automakers yesterday carried a double dose of bad news for the U.S.

Trouble in the housing market has spread to dealer showrooms, with worrying implications for the broader economy, and Detroit no longer is the carmaker of choice for the majority of Americans.

In July, import brands grabbed a majority share of the U.S. market for the first time as sales by the Big Three nose-dived. Sales of foreign nameplates were down too, off 5 percent from July 2006, but the falloff for General Motors Corp., Ford Motor Co. and Chrysler Group was much bigger - 19 percent.

Total car and light-truck sales in the United States fell 12.3 percent, according to data-tracking company Autodata Corp.

"Housing sales are in the tank, and now we're seeing the same in auto sales," said Erich Merkle, an analyst with the consulting company IRN Inc. "What else is there? You can't support an economy on groceries and gasoline."

For Detroit, the foreigners' achievement - their cars accounted for almost 52 percent of July sales - was a long time coming, though the signpost might not be very meaningful in an industry that is increasingly globalized.

And the "import" tag fits less and less these days. For example, more than 80 percent of the 900,000 vehicles Honda Motor Co. has sold in the United States this year were made in the U.S. or Canada.

"All of the major manufacturers are operating across the globe now," said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich. "While GM has lost market share in the United States, they've dramatically expanded their market share in other parts of the world."

Last month's sales drop was the biggest since July 2006, when the decline was 17 percent. That was because that month's results were compared with strong sales in the previous July that were sparked by "employee only" financing offers. Sales fell more than 13 percent in October 2005 as gas prices spiked in the wake of hurricanes Katrina and Wilma.

There were scattered pockets of good news. Among big automakers, only Nissan managed to post a gain, at 1.7 percent. Lexus, BMW, Land Rover and Audi also reported increases.

Top sellers fell

The slump in the housing market hurts car companies by putting a crimp in the sales of pickups purchased by construction workers and companies, said Jesse Toprak, an analyst with in Santa Monica, Calif. Sales of the Ford F-Series and Chevy Silverado pickups, the two top-selling vehicles in the U.S., fell 18 percent and 29 percent last month, respectively.

What's more, falling home prices and a slowdown in refinancing and home equity lending dampens overall consumer appetite for car shopping, despite the fact the Conference Board reported Tuesday that consumer confidence in June was at a six-year high.

"If I feel good about the economy, I may go out and buy a new DVD player," he said. "But I may not feel good enough to go out and buy a $40,000 truck."

High gasoline prices are hurting automakers by depressing sales of gas-hungry pickups and SUVs, which the U.S. companies rely on for the bulk of their sales.

In addition, Ford and GM have been intentionally cutting back on low-profit sales to corporate and rental fleets. Ford said sales to rental companies were down 57 percent in July, although it noted that sales to retail customers were down 17 percent.

Ford - which suffered an overall sales decline of 20 percent according to Autodata - was displaced by Toyota Motor Corp. as No. 2 in U.S. sales. That has happened five times in recent months, but Toprak said Toyota might have permanently bypassed Ford. Like GM and Chrysler, Ford is closing plants and cutting production to regain financial stability.

The sales report came just after Ford and GM reported surprisingly strong financial results for the second quarter, which ended June 30. Perhaps with the July numbers in mind, both automakers warned that the second half of the year would be challenging.

Consumers might benefit from the automakers' summer swoon, which could lead to higher incentives on 2007 models from now through October, Toprak said. "We should be seeing a buyer's market."

Chinese coming

For Detroit, the loss of top billing in July was a fall from a lofty perch. Fifty years ago, U.S. companies made almost every car sold in America.

And now a new competitor looms across the Pacific.

"The Chinese are going to send cars over here, and we're overestimating how long it will take them to make a quality product," said Peter Morici, a professor at the University of Maryland Robert H.. Smith School of Business and former chief economist at the U.S. International Trade Commission.

The Japanese and then the South Koreans needed years to learn how to make cars good enough to grab a significant share of the U.S. market, he said. "It's not going to take the Chinese that long."

Martin Zimmerman writes for the Los Angeles Times.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad