August auto sales down as consumers feel pinch

09/01/2006

Friday September 1, 6:53 PM EDT

By Kevin Krolicki

DETROIT (Reuters) - U.S. auto sales weakened in August in an unexpected drop that industry analysts attributed to growing economic pressures on consumer spending.

Recent sales declines had been blamed on problems specific to the U.S. Big Three, who rely on trucks for almost 60 percent of their sales, but this time analysts also cited economic factors like rising interest rates, higher gas prices and a slowing housing market—raising the specter of a deeper, industry-wide slump in the months ahead.

Sales of cars and light trucks dropped almost 5 percent in August from a year earlier after adjusting for the number of selling days in the month, industry tracking firm Autodata Corp said. Sales for the year to date are down more than 4 percent.

Ford Motor Co. (F) was the biggest loser in percentage terms for the second consecutive month, posting a sales decline of nearly 12 percent.

The result underscored the pressure on Ford as it readies an accelerated turnaround plan in response to a collapse in the market for its trucks and sport utility vehicles, but analysts said the broad downturn raised a red flag for every automaker.

“The sales are disappointing,” said George Magliano, research director at Global Insight, an industry tracking firm, who had expected almost flat sales overall. “We were far enough off the mark for it to bother me. I think there’s no getting around the fact that this was weaker than expected.”

General Motors Corp. (GM) reported flat sales and cut fourth-quarter production by 12 percent, a move it said was needed to avoid resorting to low-margin sales to car rental companies in order to keep its assembly lines running.

JP Morgan analyst Himanshu Patel said GM’s production cut had been anticipated but the sales result was worse than he and other Wall Street analysts had expected. “We expect a neutral to negative reaction to the results,” he said.

CHRYSLER OFFERS NO-INTEREST LOANS

DaimlerChrysler AG (DCX), which has also been hit by the shift away from SUVs and trucks, reported a 3 percent drop in sales, its fifth straight decline.

Chrysler brought back employee discounts in August and zero-percent financing, a concession on pricing that managed to reduce its overhang of unsold vehicles by 60,000.

Chrysler, which has struggled to reduce the burden of financing unsold cars for its dealers, ended the month with an inventory of almost 503,000 units—80 percent of those slow-selling trucks and SUVs.

In a bid to run down that total, the company said it was offering zero-percent financing for up to 72 months on 2006 minivans, Dodge Ram pickups and some Jeep models.

Said Morningstar analyst John Novak: “I would say there’s a general weakness here. Most of the risk has to be to the downside (for the industry). It’s hard to find any catalysts that would drive sales in the short term.”

Overall, U.S. sales of cars and light-duty trucks came in at 16.06 million units in August, down from 16.85 million a year earlier on a seasonally adjusted and annualized basis, Autodata said. Analysts had projected sales of between 16.6 million and 16.8 million units.

The shortfall showed consumers were feeling the pinch from a slowing economy, especially in the absence of blowout discount offers of the kind Detroit had offered in the summer of 2005, analysts said.

“We are starting to see some softness in the market overall,” Erich Merkle of IRN Inc. said. “The economy is starting to slow down and that’s putting pressure on auto sales. And incentive spending isn’t quite as aggressive as it was in the past.”

The clear standout was Toyota Motor Corp.’s U.S. sales, which rose 13 percent in August, led by gains for the company’s fuel-efficient passenger cars, such as the subcompact Yaris and the Prius hybrid.

Value-oriented Hyundai Motor Co. also bucked the industry trend, gaining 6 percent on the back of gains for the new Sonata sedan.

Honda Motor Co.’s sales were down 7 percent. Nissan Motor Co.’s were down 6 percent.

FORD SEES MORE SUV DECLINES, GM SAYS ON TRACK

Despite Ford’s sales decline, its unit sales for August were back above Toyota’s total, a month after the Japanese automaker overtook the No. 2 U.S. automaker on a monthly basis.

Sales of Ford’s trucks, including its market-leading F-150 series, dropped 21 percent from a year earlier as U.S. consumers opted for more fuel-efficient passenger cars.

Ford sales analyst George Pipas said he expected consumers to continue to trade in used SUVs for passenger cars on the view that high gas prices showed no sign of abating.

“I think there is some more fallout in that category,” Pipas told reporters on a conference call.

Slowing housing starts can also mean slower pickup truck sales, since the vehicles are often driven by construction crews. The auto industry has also benefited in recent years from the boom in housing refinancing at lower interest rates.

Ford has cut third- and fourth-quarter production schedules, citing the weakening demand for its trucks.

The company is readying a stepped-up version of its restructuring plan due to be announced later this month.

Ford has already announced plans to cut 30,000 jobs and close 12 factories through 2012 but has faced criticism for not moving faster to cut costs and realign its product line-up.

GM sales analyst Paul Ballew said the company, which is going through its own restructuring, remained on track to meet its 2006 sales targets despite signs of weaker overall demand.

“As we turn attention to the rest of the year, we feel very good that despite some curveballs, we’re on track to hit our sales targets for the year and to maintain our inventory levels,” he said.