U.S. Light-Vehicle Sales Slump 10% Y/Y in May; Honda Civic Best-Selling Model

U.S. light-vehicle sales fell 10.7% year-on-year (y/y) in May to 1.39 million vehicles from 1.56 million. There was an unprecedented shift away from truck segments, including pick-ups and sport utility vehicles (SUVs), coupled with an increase in passenger car sales during the month. May 2008 had one more selling day (27) as classified by U.S. carmakers, which include Saturdays, than May 2007 (26). The seasonally adjusted annualised run rate for sales in May, typically a strong month, was around the 14.3-million mark, the lowest level since 1994.

General Motors (GM) suffered a poor month, hit further by the strike action at American Axle. Its group sales fell 27% y/y in May, and its overall U.S. market share fell below 20%. Its truck sales plummeted 36.9% y/y as the effects of the strike hit GM hard, although it did help the company reduce inventories, the only bright spot in the month. GM said that it lost about 15,000 to 18,000 sales in May, mainly because of the work stoppage. "Our challenge in May was having enough vehicles available to sell", GM said. However, GM's car sales also slid 13.8% y/y to 130,115 units during the month.

Meanwhile, Jim Farley, Ford Group’s vice-president of marketing, said in a conference call that the move towards passenger cars is "the most dramatic shift in customer segmentation potentially in two or three decades", as the company’s sales at the group level fell 15.8% y/y to 217,268 vehicles in May, some distance behind Toyota. The iconic F-150 also lost its title as the top-selling vehicle in the U.S. market for the first time in 17 years, falling to fifth in the rankings as Ford's truck sales fell 25.7% y/y overall. Farley said, "I think it's a watershed moment", adding, “It's a significant development, but it's not surprising given fuel prices." Farley also noted, "We always said [the] second quarter would be challenging, but within that, the segmentation shifts have been breathtaking." Ford reported that its passenger car sales rose 2.8% y/y in the month, representing the one positive development for it during the month.

Toyota suffered a 4.3% y/y drop in overall sales to 257,404 units, although this was below the overall market fall. The Japanese giant reported a 12.2% y/y drop in truck sales, while its passenger car sales were up 0.4% y/y. Bob Carter, a group vice-president at Toyota, said that the company's assumptions about the U.S. market are now "off the table". Toyota's Corolla and Camry moved ahead of the F-150 to take second and third place, respectively, but they failed to top the meteoric rise of the Honda Civic, which was the best-selling model for the first time in May.

In another shift, Honda, whose group sales rose 15.6% y/y to 167,997 units, moved past Chrysler to become the fourth-best-selling automaker in May. Honda's truck sales fell 8.8% y/y in May, however, and the overall increase was the result of a meteoric rise in car sales, up 31.8% in the month to 114,796 units, led by the Civic, which was the top-selling model with 53,299 units.

Meanwhile, Chrysler's group-level sales slumped 25.4% y/y to 148,747 units. Chrysler reported a 22% y/y fall in truck sales, but even worse it suffered a 33% y/y slump in car sales in the buoyant segment as a result of a 40% cut in fleet sales. "There is a new era emerging in the restructuring of the American economy", said Chrysler President and Vice-Chairman Jim Press. "There is an unprecedented shift in the industry that is challenging, but we are determined to provide consumers what they need and want."

Outlook and Implications

The ongoing surge in the global price of oil, resulting in unprecedented fuel cost rises in the United States, hit May's truck sales hard again, and dragged down the overall light-vehicle market into negative territory, despite the extra selling day in the month. Once this extra selling day is factored in, the picture becomes even bleaker. It is clear now that more and more American consumers are abandoning the traditional truck segments for the time being, particularly as the construction sector is still in turmoil, while passenger and small-car sales are booming, typified by the meteoric rise of the Honda Civic, surpassing even the Toyota Corolla and Camry.

There were few encouraging signs for the domestic automakers in May, and GM announced yesterday that it would shut four truck plants in response to the steep drop in demand and what it sees as a more permanent shift in consumer behaviour. GM plans to shut two truck plants in the United States and one apiece in Canada and Mexico, and it may also consider selling the Hummer brand in the wake of the turmoil in the truck segments. Ford meanwhile is suffering from both the F-150 model being on its run-out phase, with a replacement due later this year, and the huge shift away from pick-ups witnessed this year. To bolster sales of the outgoing F-150, Ford will bring back its Employee Pricing incentive in June.

However, Toyota, also now a large seller of trucks in the country, is taking a more cautious approach to its truck operations, and unlike Ford and GM has no plans to cut production or lay off workers and idle assembly plants yet. Toyota remains confident that its "core buyer" for full-size pick-ups remains connected to the construction industry, and that the segment will rebound when the housing market does. "We're confident in its recovery", said Bob Carter in a sales call, indicating that Toyota expects the full-size truck market to turn around in 2009 and 2010. He emphasised that people who need trucks will not buy Corollas as a substitute, and said the company is willing to wait for demand to pick up. "This is a short-term phenomenon that the industry has to weather through", Carter said.

It is not all bad news, even for the domestic manufacturers, as there are still signs that passenger car sales are strong, and that GM and Ford in particular are having some success in the retail arena selling their new offerings to the buying public, instead of dumping scores of sedans and compacts into rental fleets to bolster their headline figures. Chrysler is suffering badly, however, and despite it too pulling back from fleet sales it is heavily exposed to the truck segment and it is difficult to know where the company can turn in the short term to alleviate some of the pressure.

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