Trucks at Work

Bad auto daze

If you adjust for population growth, this is probably the worst industry sales month [October 2008] in the post-WWII era.” –Mark LaNeve, vice president, GM North America

It’s hard times for anyone selling cars and light trucks in North America right now – for domestic and foreign automakers alike.

Just take a look at the October 2008 sales numbers in the U.S. General Motor’s saw sales plummet 45.4% last month overall compared to October 2007, with Ford Motor Co. posting a 29.2% drop and Chrysler’s sales nose diving 34.9%. Even Toyota – the 900 pound gorilla in the North American market right now – suffered a 23% decline in car and light truck sales.

Industry-wide, automakers sold 838,156 minivans, cars and light trucks in October this year, off 32% from the same month in 2007 – the worst year-over-year decline in over a decade and a half. “These are very challenging times,” noted George Pipas, Ford’s chief sales analyst, with characteristic understatement.

What these numbers mean is pretty stark: it translates into a domestic annual build-rate of 10.56 million automobiles and trucks per year, way down from the 16 million annual build-rate of recent times. That means a lot of expensive plant capacity – and even more expensive labor (the average unionized auto worker makes almost $55,000 a year with full benefits) – is being idled, leading to all kinds of red ink.

“It also reflects an unprecedented credit crunch that is dramatically impacting the entire U.S. economy – from the housing market to big and small companies to banks to family run businesses,” said Mark LaNeve, vice president, GM North America. “The credit freeze has also had a very negative impact on consumers’ confidence and their purchase behavior across America. We believe there is considerable pent-up demand from the last three years, but until the credit markets open up and consumer confidence improves, the entire U.S. economy – and any industry like autos that relies on financing – will suffer.”

Obviously, it’s easy to wallow in bad news and point fingers. For over a decade, U.S. automakers put almost all of their eggs into the light truck basket – churning out sport utility vehicles (SUVs) and pickups that were long on power and profitability, but way WAY short on fuel economy. That decision really came back to haunt them this years as oil prices spiraled up to over $147 per barrel, leading to $4 a gallon gasoline and $5 a gallon diesel.

Despite a precipitous drop in oil prices since then (to just under $66 per barrel today), U.S. consumers are not returning to their old buying habits. Americans drove 78 billion FEWER miles over the first 10 months of 2008 compared to the same period last year and with $4 gasoline still fresh in their minds, along with harder-to-get loans, people just aren’t buying what U.S. automakers have to sell.

But it’s not all gloom and doom – in fact, those very same struggling U.S. automakers are shifting gears quickly to bring the right kinds of vehicles to the North American market that will sell. And if they get the $25 billion lifeline proposed by the federal government, they could get back on the path to viability. That’s important, because automakers generate a lot of freight demand in this country.

“The truth is that times like these present an opportunity if you can execute your plan, and we’ve got lots of new products in the coming months to launch and will deliver really outstanding fuel economy and quality on par with the best in the country,” said Ford’s Pipas in his monthly sales call with investors and analysts.

Though Ford’s market share over the past few months fell into the 11% to 12% range, by October it surged into the plus-13% range – which is why Pipas is encouraged, in spite of these extremely difficult times. “We’ll be introducing nine new products plus two new hybrids in the next nine months which will account for 45% of their volume in 2009,” he noted.

GM is seeing success outside of the U.S. in the Latin America, Africa and Middle East and Asia Pacific regions during the third quarter this year – helping GM sell more than 2.1 million vehicles globally. Though GM’s total sales were down 11.4% in the third quarter this year versus the same period in 2007 – with total global sales off 5.8% for the first nine months of 2008 compared to 2007, again reflecting the economic pressures of the U.S. and Western European markets – GM sold 1.286 million vehicles outside the U.S., which accounted for nearly 61% of its total global sales volume compared with just over 56% a year ago.

“The recent challenges in the global financial markets, including credit tightening and the drop in commodity prices, have negatively impacted market demand,” said Jonathan Browning, vice president, global sales, service and marketing for GM. “However, our sales performance shows that we are continuing to take advantage of new emerging market opportunities and are meeting customer needs with fuel-efficient products that offer compelling design and great value.”

“These are extraordinary times for the U.S. economy, for consumers and for an auto industry that is running at deep recessionary levels relative to 1999-2006,” added GM’s LaNeve. “We are offering the highest quality and best value vehicles to customers in our history – along with great incentives. But we can’t do it alone as GM or the auto industry. It will take a coordinated national effort to turn this economy around.”

It’ll be tough, but if U.S. automakers get a little federal help (far less in dollars than what the financial sector got I might add) I think they’ll pull through OK.