DECEMBER 29, 2006
Autos
By Matt Vella
Detroit's Dreary December
For the auto industry, December sales mirror the rest of the year: with Toyota surging and nearly every other maker struggling
The auto industry is on track to end the calendar year much it has spent the rest of 2006: in a slump and observing the stark contrast between the ongoing success of Toyota on the one hand, and the still-plummeting sales and market share of the Detroit Three on the other.
Preliminary figures released last week by analysts at Edmunds.com show the industry at large will be down 6.2% for the final month of 2006, to 1.38 million new vehicles sold, compared to December, 2005. Those results would translate into total industry sales for 2006 of just 16.46 million units, down 2.8% from 16.93 million last year.
Standard & Poor's, meanwhile, estimates that 2006 auto sales will settle around 16.6 million units, down slightly less. According to Efraim Levy, a senior auto industry analyst at S&P, next year's figures could drop even further, to 16.4 million units (like BusinessWeek.com, S&P is a unit of The McGraw-Hill Companies (MHP)).
One Bright Spot Year-over-year results like those come as no surprise after an exceptionally difficult year for domestic automakers, occupied by high-profile labor buyouts and high-impact production cuts to match declining sales and market share. High fuel costs didn't help—according to the Energy Information Administration, gasoline peaked just above $3 a gallon nationally in late July and early August, knocking the wind out of the auto buying season.
The singular blazing bright spot, of course, is Toyota (TM). The company is forging ahead to permanently nab the No. 2 spot in the U.S. from Ford next summer and could also top General Motors (GM) globally sometime in 2007. Sales for the last month of the year will probably be up by 11.4%, to 218,000 units, with market share increasing to 15.7%, from 13.7% during the same period last year, according to Edmunds.
But that's where the good news ends, for the most part. Other Japanese competitors are treading water. Nissan (NSANY) is expected to be down 2.6% from last year. And Honda (HMC), which uncharacteristically misread demand for Civics and the 4-cylinder version of its Accord sedan, should match last year's numbers almost identically.
Ford's Falling Figures Worse yet, there's likely to be little relief for domestics once all the figures are tabulated in mid-January. Indeed, of the six major auto manufacturers, only Toyota is expected to post any gains whatsoever for the month. The combined domestic market share for DaimlerChrysler's (DCX) Chrysler division, Ford (F), and GM is expected to fall from 56.6% last year to 54.3%.
The picture is, by far, the bleakest for Ford. There are indications it could post a sales decline in excess of 16% from December last year, to 210,000 new vehicles, adjusted for one fewer selling days. That drop is more than five times larger than the second biggest decline of the month, at Chrysler. Unadjusted, Ford could be off by as much as 19.6%.
And things aren't likely to get better any time soon for Ford. The retirement of the Taurus, finalized earlier this year, will set the company back by as much as 500,000 units annually. Jesse Toprak, executive director of industry analysis for Edmunds.com, says "Ford is suffering. Going forward, it's facing a lack of new products and increased competition from General Motors and Toyota."
The Big Squeeze December is a traditionally strong month for domestic automakers because consumers tend to buy more sport-utility vehicles and trucks, thanks, in part, to worsening weather as well as generous yearend deals. But this year, those sales haven't been able to buoy Ford's results as much as they did during the same period last year.
New trucks, SUVs, and crossovers from General Motors are starting to squeeze Ford in precisely the markets where it makes the biggest profits. Toyota's upcoming redesign of the Tundra pickup is also likely to nibble at Ford's F-Series, which is still the best-selling truck in the U.S. as well as Ford's most successful model. "Going into 2007, virtually everyone is going to grab market share from Ford," adds S&P's Levy.
For its part, Chrysler is unlikely to fare much better for December. Toprak expects adjusted sales to be down 3.1%, to 177,000 units. Chrysler's U.S. sales market share is likely to hold steady, just under 13%, even as it suffers from a lack of product diversity—too many heavy SUVs and just one car that earns over 30 miles per gallon until new models roll off the assembly line over the next year. "Given declines almost every month, 2006 was a year to forget for Chrysler," says Toprak.
New Realization The one domestic bright spot is General Motors, which is likely to hold its ground on the strength of new products. Toprak expects GM's adjusted December sales to be off from last year by 1.5%, to 365,000 units. But market share is actually up. Edmunds predicts that figure will rise slightly, to 26.4%, up nearly 2% from the preceding month and up from 26.1% during the same period last year.
GM's new pickups, introduced in November, are on an uncharacteristically accelerated schedule. All the variants of the GMC Sierra and Chevrolet Silverado, including numerous body styles and engines, should be available within a short six months instead of the historical 18 months it has taken the company to prepare them. That could help GM further improve its market-share figures next spring (see BusinessWeek.com, 8/16/06, "GM's Hot Models").
Levy and Toprak both see one positive development common to all three American automakers. "Domestic brands are willing to get rid of volume for the sake of profitability," says Levy. Toprak adds, "All the domestics now fully realize they can't go after market share alone without minding profitability."
Going into 2007, that leaves industry observers watching not for a sudden surge in new sales but, rather, milder gains: fewer incentives, lower transaction costs, and less discounting—all milestones on the road to domestic profitability.
Click here to see the 10 best-selling cars of 2006.
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