Operations

American Auto Companies Project a Bleak 2008

LCT Staff
Posted on January 2, 2008

DETROIT — It looks like 2008 will be a bad year to sell cars and trucks in the United States. Every time one company predicts how the industry will fare, another seems to come up with an even more dismal number.

Most forecasts now come in ranging from 15.5 to 15.9 million vehicles, an estimate that would mark the worst year for sales in the United States since at least 1998. Yet several big foreign carmakers, including Toyota and Honda of Japan, are projecting that their sales in the United States will increase in the coming year in spite of the housing slump, high gas prices and lackluster consumer confidence. It is shaping up to be another year of declining market share for the ailing Detroit automakers and of profitable growth for their rivals. The soft market will test the Detroit companies’ ability to stick with their newfound strategy of trying to make more money from fewer sales.

The temptation to unfurl sale banners in desolate showrooms might be the greatest for General Motors, which has been in a tight race with Toyota in 2007 to retain its position as the world’s largest automaker. G. M. fell behind in the first half of the year but led after nine months; final sales figures will not be known until early January.

Whatever the result for 2007, analysts expect Toyota to pull ahead by a wide margin in 2008. Toyota said last month that it anticipates global sales will increase 5%, to 9.85 million vehicles. G. M. has not released its full-year production goal, but its rate of expansion worldwide has been slower and its United States sales continue to decline.

“G. M. has hopefully learned some lessons from the domestic market,” said Jesse Toprak, director of industry analysis at Edmunds.com, a Web site that gives car-buying advice to consumers. “Market share is not the bottom line goal; profitability is.”

Several years ago, falling sales led the Detroit companies to introduce huge “employee pricing” sales that quickly cleared dealer lots but significantly hurt profits and, in the longer run, discouraged new car sales because the resale values of their cars plummeted. The companies have insisted that they do not plan to revive that strategy in 2008, no matter how bad the market becomes. But some analysts are not so sure.

“If things aren’t improving by the second quarter,” Mr. Toprak said, “we may see some more creative or aggressive incentive spending.”

The gloomy outlook for Detroit’s automakers has caused investors, many of whom had begun to believe that they were progressing in their turnaround efforts, to shy away from those companies recently.

Shares of G. M., the biggest-gaining stock in the Dow Jones industrial average in 2006, have fallen 42% since the high point for the year on Oct. 12, and were down 17.85 percent for 2007. Shares of the Ford Motor Company are down 30 percent since their high on July 2, and 11 percent for 2007. Chrysler is a private company.

New products, like G. M.’s Chevrolet Malibu and Cadillac CTS sedans and the Ford Edge crossover vehicle, have sold exceptionally well, but they are not enough on their own to keep the companies from continuing to lose market share. Ford plans to introduce several important vehicles in 2008 — a redesigned F-series pickup and the new Flex crossover — but they will not reach dealers until late in the year.

Honda has found another hit in the recently revamped Accord sedan, and several new vehicles have helped Toyota overcome some uncharacteristic quality stumbles in the last year.

The president of American Honda, Tetsuo Iwamura, said during a visit to Detroit in December that he expects the company’s United States sales to grow 2.5% in 2008. Toyota predicted that sales in the United States would increase 1%. Meanwhile, G. M., which had a five-month supply of unsold pickup trucks at the end of November, said it is cutting first-quarter production by 11%. Ford has announced a 7.4% cut in the same period.

The combined market share of the three Detroit companies fell below 50% during two months of 2007, July and November, something that had never happened before. Their production cuts mean the chances of that happening in 2008 are even greater.

“I think we’re going to have a great year,” said Terry Baier, general manager of the Oakbrook Toyota dealership in Westmont, Ill. “I don’t think the market is going to hurt us like it’s going to hurt the domestics. Right now I have a showroom full of customers, and you don’t see that at a Chevy store. We’re looking for a phenomenal year.”

Dean Konner, who owns Konner Chevrolet in West Caldwell, N.J., remains optimistic for 2008 although he said 2007 was “not good.” He said G. M.’s new vehicles have been great but that unfortunately they came at a time when the market was weak.

“The outlook hopefully will be brighter than this year,” Mr. Konner said, “but we need the gas prices to come down.”

Source: New York Times

LCT Staff LCT Staff
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