Analysts predict declines across industry in staggered economy
Detroit's automakers and, indeed, the entire auto industry, are expected to report a historic drop-off in monthly auto sales Tuesday a plunge that helps explain why the automakers are dramatically, and decisively, cutting production at factories during the months ahead.
In fact, when sales for the first half of the year are reported next week, they are expected to show the worst half-year performance since at least 1995, as the nation struggles through a confluence of gloomy factors that have consumers on edge.
June auto sales are expected to be off the most at Chrysler LLC, with a plummet of 27%, according to an average of forecasts from major brokerages and Edmunds.com, the automotive consumer Web site.
At General Motors Corp. and Ford Motor Co., meanwhile, analysts are expecting declines of about 20%.
John Mihalopoulos, owner of Rodeo Ford, a large dealer in Dallas, said the economic environment "has halted business."
"We went from selling 80 to 100 pickups a month down to 10," he said.
Brian Johnson, an auto analyst for Lehman Brothers, wrote in a note to investors Friday, that the environment "continues to take a much heavier toll on the Big Three, which are being hit disproportionately by the consumer's dramatic shift away from traditional trucks toward more fuel-efficient vehicles."
But Detroit automakers won't be the only ones feeling the pressure.
Industry-wide new car and truck sales for June are expected to fall to their lowest point since 1993, a consequence of consumers' sour and uncertain view of the economy.
The misery now includes housing and credit crises -- which have slashed the net worth and purchasing power for most households and inflation for basics, such as food and gasoline, which is now over $4 a gallon.
"Consumers' assessment of present-day conditions continues to grow more negative and suggests the economy remains stuck in low gear," Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement.
Last week, the Conference Board reported that consumer confidence had fallen to a 16-year low. The Index now stands at 50.4, down from 58.1 in May and one of the five lowest readings ever.
The "present situation" index, meanwhile, decreased to 64.5 from 74.2, and the expectations index declined to 41.0 from 47.3 in May.
"Looking ahead, consumers' economic outlook is so bleak that the expectations index has reached a new all-time low," Franco said. "Perhaps the silver lining to this otherwise dismal report is that consumer confidence may be nearing a bottom."
Because of the dismal conditions, automotive experts are forecasting June's seasonally adjusted annual selling rate, or SAAR, to be dismal, between 13.2 million and 13.7 million vehicles.
The SAAR indicates what sales would total for the whole year if demand remained constant over 12 months, adjusting for seasonal factors. It's an easy reference to compare how the market is performing month to month.
To keep that June SAAR forecast in perspective, consider this: For the past decade or so, the SAAR usually has ranged between 14 million and 17 million vehicles.
Last June, the SAAR was 15.69 million. So, if analysts are correct in their estimates, the industry will register about a 15% sales decline in June.
Consumers also are expected to continue moving away from trucks, which are highly profitable to Detroit's automakers, to fuel-efficient, affordable cars.
Through May, sales of light trucks, a category that includes minivans, pickups, SUVs and crossovers, were down 16%, compared with the same period a year ago. Cars sales, meanwhile, were flat. And the entire industry was down 8.4%.
In the past, Detroit's automakers have responded to substantial downturns in auto sales by dramatically ramping up discounts on cars and trucks and continuing to produce them.
However, both GM and Ford have announced major production cuts in response to the environment, rather than heavily discounting their vehicles. Heavy discounting has proven to damage resale values and brand image long-term.
Given the shifts in the market, almost all of those production cuts will come for trucks, while the automakers struggle to increase their output of popular cars and crossovers.
Ford said last Friday that it planned to cut truck production by 90,000 over the next few months and delay the launch of its crucial new F-150 pickup until late fall. That cut follows an announcement that Ford would cut 2008 North American pickup and SUV production by 280,000 to 350,000 vehicles.
GM has made similar moves, though it has also has launched a sweeping discount program.
The Detroit automaker said Monday it would cut truck production by 170,000 units in the second half of the year. That move came just weeks after the company said it would permanently cut truck production by 700,000 annually, or about 40%, by idling four plants by mid-2010.
GM also has announced that it would indefinitely freeze its future large truck development efforts, shifting engineers from its next-generation big truck programs to improvements in its current large pickups and other projects.