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It's not just Detroit that's in trouble. The water's also falling on the floor in Stuttgart, Munich, Toyota City, and other automotive manufacturing centers around the world. That's because for the first month of 2009 Americans bought cars at an annualized rate of 9.57 million, the worst level for January—typically a weak month—since 1963 and the worst monthly selling rate since 1982. Industry laggards General Motors (GM) and Chrysler led the losing with sales that fell 48% and 55%, respectively. Ford's (F) sales plunged 40%, while several Asian automakers reported big drops as well.
Record low consumer confidence, stingy lenders, and a deep decline in demand among fleet buyers such as rental car companies have kept auto sales in the tank. While carmakers say some banks are starting to loosen their lending standards, it hasn't been enough to jump-start car sales stalled since last fall by the collapse of credit and stock markets. "Our business is based on credit more than any other industry," says Mike DiGiovanni, executive director of global market analysis at GM.
Automakers are bracing for poor sales, but they're hoping that banks are starting to make more loans. GMAC Financial Services, for example, got $6 billion in new cash from the Treasury Dept. in December and was granted status as a bank holding company. That gives the lender access to more funds so it can make more car loans.
GM is just beginning to see the benefits, said Mark LaNeve, vice-president for sales and marketing at GM North America. LaNeve said GMAC financed 5,000 new-car sales in January. That's not much, but the lender wrote even fewer new loans in December. Dealers said that late in January, GMAC turned on the lending again. In the last week of the month, "we saw GMAC doing loans that we haven't seen for a while," said Jim Hardick, a part owner of Moritz Chevrolet in Fort Worth.
The U.S. Senate may have given the industry another shot in the arm on Feb. 3 when it passed a measure in the economic stimulus bill that would make auto loan interest and sales tax deductible on federal income taxes. The measure has a good chance of being in the final bill to be signed by President Obama.
GM and Chrysler, hardest hit by the lack of available credit, usually combine for between 30% and 35% of U.S. auto sales, so their sales declines are widely felt.
Toyota's (TM) sales dropped 32% for the month, and Honda's (HMC) fell 28%. Subaru bucked the trend of declines for a second straight month, posting an 8% sales increase, while Korean automakers Hyundai and Kia posted increases of 14% and 3.5%, respectively.
Sales incentives, and not just discounts, are on the rise as dealers and companies try to reduce stocks of unsold cars. Hyundai has boosted incentives from $887 a vehicle a year ago to $2,611 last month. But it also has been running an offer that allows buyers of new vehicles who lose their jobs to turn the keys back in to Hyundai with no damage to credit scores.
"Hyundai's program was very smart, because it dealt with the core of the issue [of consumer confidence and risk of taking on a new car payment]," said Jesse Toprak, executive director of industry analysis for auto buying research site Edmunds.com. Toprak said he expects other automakers to get creative in their offers.
Edmunds.com estimated the average automaker incentive at $2,714 per vehicle sold in January, down 5.2% from December but up 12.5% from January 2008.
For the most part, luxury auto sales were off as much as the industry as a whole, a sign that wealthier consumers are feeling the pinch as much as middle-class car buyers. Mercedes-Benz (DAI) was down 43% in January, while Volvo was down 64%, Audi was down 26%, Porsche (PSHG_p.DE) was off 36% and Lexus was down 28%. BMW (BMWG.DE) did better than most, reporting just a 16% sales decline. But BMW's MINI, which has been almost recession-proof, was off more than 15%.
A sharp cutback in business travel is hurting rental car firms, traditionally one of the industry's regular customers. Ford's top analyst, George Pipas, said he expects industrywide fleet sales to be down 65% for the month. GM sold only 13,000 vehicles to fleet customers, and only 1,000 of those cars went to rental agencies. Last year, GM sold in excess of 10,000 Chevy Malibus alone in a single month to fleet customers.
Part of the reason Detroit's sales declines are worse than those of Toyota and other Asian manufacturers is because U.S. companies typically do more fleet business than Asian companies. GM's market share was down to 19.5% in January, compared with 24% a year ago.
Automakers are struggling to plan for this year's sales. Ford, for example, is forecasting a range of between 11.5 million and 12.5 million sales industry-wide for the year. GM says it is planning its government-supervised turnaround under the assumption the industry will sell 10.5 million new vehicles in the U.S. this year. On Feb. 3, Chrysler said it is envisioning sales of just 10 million.
A swing of 2.5 million between the low end and high end of forecasts is a huge wild card, especially for Ford, which is hoping to keep its financial head above water so it can avoid tapping government loans like GM and Chrysler are doing.
Ford remains perhaps the most bullish on a second-half recovery for the industry. Emily Kolinski Morris, Ford's top economist, says she expects the first half of the year to be dismal. But she sees hope in January numbers. "We are seeing stabilization of retail sales for the last two months," she said. Factors such as the government stimulus plan and the loosening of credit, said Kolinski Morris, should push sales higher in the later part of the year.
Others are less sanguine. Chrysler Vice-Chairman James Press said the current downturn and low level of sales should be expected to continue. "I'm assuming this is normal," Press said. "We need to recalibrate and rethink all of our assumptions," such as what levels of pent-up demand really are, he added. "There's not a lot of reason to think there will be any growth this year."
Kiley is a senior correspondent in BusinessWeek's Detroit bureau.