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U.S. Market Tumbles 12.0% as Economic Headwinds Intensify
2 Apr 08
Traditional trucks and SUVs have taken a major hit as sales tumbled for the month of March, with nearly all automakers feeling the pinch.
Global Insight Perspective | | Significance | The U.S. auto market plunged 12.0% to 1.357 million units in March, as continued recessionary economic trends combined with ongoing personal finance crises to keep buyers away from vehicle showrooms. | Implications | The brunt of the drop was felt in the traditional truck segments such as full-size pick-ups and body-on-frame, truck-based SUVs. For the first time since May 2002, cars outsold trucks in the U.S. market, with even the astonishing surge in CUV sales since the beginning of the decade unable to compensate for the decline in the traditional truck segments. | Outlook | Some industry executives have suggested that this is hopefully the trough in the current industry contraction, but Global Insight is not forecasting any improvement until the second half of the yearand even then, any recovery is going to depend on just how bad the contraction gets. GI has revised its estimate for the year's sales to 14.9 million units. |
Total March 2008 U.S. Vehicle Volume | | | 2008 | 2007 | % change | March | 1,357,281 | 1,542,687 | 12.0 | YTD | 3,578,680 | 3,889,565 | 8.0 |
Losses stunned the industry as automakers lost volume across the board in March, with winners few and far between. Total industry volume for March came in at 1.357 million units, down a stunning 12.0% year-on-year from March 2007. For the first quarter, the market has sold 3.579 million units, down 8.0% from the first quarter of 2007. The seasonally adjusted selling rate (SAAR) was 15.051 million units versus 16.2 million units in 2007. U.S. March 2008 Light Vehicle Sales by Group | Group | March 2008 | March 2007 | % change | Q1 2008 | Q1 2007 | % change | GM | 280,713 | 345,417 | 18.7 | 800,376 | 898,442 | 10.9 | Ford | 226,448 | 263,607 | 14.1 | 581,784 | 639,605 | 9.0 | Toyota | 217,729 | 242,675 | 10.3 | 571,747 | 605,855 | 5.6 | Chrysler | 166,386 | 206,435 | 19.4 | 453,871 | 537,249 | 15.5 | Honda | 138,734 | 143,392 | 3.2 | 352,642 | 354,208 | 0.4 | Nissan | 106,921 | 111,119 | 3.8 | 269,745 | 278,981 | 3.3 | Hyundai | 67,667 | 69,551 | 2.7 | 163,552 | 177,808 | 8.0 |
The domestic manufacturers took a bigger hit than the foreign automakers, but of all the groups operating in the United States, only Volkswagen (VW) and Daimler posted gains for the month. General Motors (GM) took an 18.7% dive from the year-ago period, ringing in at 280,713 units for March 2008 versus 345,417 units a year ago. For the first quarter, GM sales are down 10.9% to 800,376 units, nearly 100,000 units under the first quarter of 2007. The numbers are a bit deceptive, says GM, in that the total retail share for the quarter has come in even with the year-ago period. This comes despite significant reductions in volume in the traditional truck segments like full-size pick-ups and sports-utility vehicles (SUVs), such as the 54.0% March drop in Chevrolet Trailblazer sales or the 23.6% drop in Silverado full-size pick-ups. Total truck drop, according to GM's numbers, rang in at a 22.4% reduction, despite strong sales of the company's mid-crossover-utility vehicle (CUV) sales. The company did report strong sales of its new models however, with the Cadillac CTS and Chevrolet Malibu still posting much stronger sales than the outgoing models. Ford is also suffering, despite stronger sales of the company's Focus compact and Edge crossover. Ford sales fell 14.1% to 226,448 units y/y, and are now down 9.0% for the first quarter to 581,784 units. The company did have some success with the new Focus (up 24% for the month) and the Edge CUV (up 23.8% y/y), while the Escape CUV also rode the CUV crest, up 12.1%. Chrysler dropped an astonishing 19.4% to 166,386 units y/y (now down 15.5% to 453,871 units YTD), as its big trucks took a major hit (as did nearly all pick-ups in the market), with Chrysler brand falling 22%, Dodge off 21%, and Jeep relying on its Compass and Patriot small CUVs to keep it to just a 12% decline for the month. But the malaise was not limited to the domestic automakers; even the vaunted Toyota, which in 2007 would buck monthly trends that saw the Detroit Three tumble while it still gained share, saw sales slide for the fourth straight month in March. Toyota slid 10.3% to 217,729 units y/y (now down 5.6% to 571,747 units YTD) as sales of the company's trucks matched the sales of the rest of the industry, and dropped through the floor. Lexus brand fell 13.5% while the Toyota/Scion combination fell 9.8% as well. Even the company's newly introduced Corolla compact could not generate positive numbers, sliding a surprising 26.9%. Outlook and Implications Economic indicators late on Tuesday (1 April) began to show some slight signs of health, which resulted in quite a rally on Wall Street at the close of business on Tuesday. But if the American economy is truly at the bottom of the trough and on the verge of a rebound, the auto market is not yet showing any signs of that improvement. Global Insight is revising its 2008 forecast yet again, now anticipating 14.9 million units to be sold for the United States this year. The ongoing credit crunch has now effectively spilled over into the automotive market, and is definitely affecting sales in a couple of ways. Sales are depressed due to lower disposable income across nearly all demographic groups, but with lower income segments facing a truly difficult task. Higher prices on everything from food to fuel are squeezing these consumers, with the result of delayed purchases. Those that are in the market and are seeking new cars and trucks are finding it difficult to get financed, as fewer independent lenders are willing to take on sub-prime borrowers anymore. As a result, the captive finance companies such as GMAC and Ford Credit are having to step up and lend to customers, lest they retreat to the used car market. Leasing is also making a stronger showing according to a number of executives, which makes sense; leasing will allow for generally lower monthly payments than purchasing, and can typically be had at lower interest rates. The numbers look considerably worse for the domestic automakers than for the foreign nameplates, for two reasons. First, the domestics are still much more heavily invested in fleet sales, which all of the Detroit Three have taken steps to reduce this past month. Chrysler still has one of the highest fleet-to-retail sales ratios in the industry, but even they have started to see the wisdom in reducing sales to the daily rental outlets (higher residual values and consequently more favourable leasing deals). This played a big part in both Ford and Chrysler's drops in March; Ford reported that it had reduced daily rental sales by a further 16% in March, lower than the major reductions already taken in 2007. The second factor affecting domestic automakers more than foreign nameplates is the exodus from the traditional truck segments. Body-on-frame style SUVs and pick-ups are continuing to face much lower sales, and those segments are still far more skewed towards domestic automakers. While the domestics have now started to make inroads with their own unibody CUV offerings, none of them has as complete a line-up as the foreign nameplates. GM has found solid success with its larger mid-CUVs, but the biggest mass-market brand (the Chevrolet Traverse) is not set to arrive until later this year, and its ageing compact CUVs (the Chevrolet Equinox and Pontiac Torrent) have seen sales slide considerably. At Ford, the big CUV (the Flex) is also not forthcoming until much later this year; the company is right now surviving on the Edge mid-CUV and Escape compact CUV, both of which are bolstering the truck side of Ford's business. With these two factors playing against the domestic automakers, trying to enact restructurings and recoveries looks set to face continued challenges.
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