US auto demand falls to weakest level since February

ERJ staff report (TB)

Detroit, Michigan -- US auto sales dropped to their weakest rate since February as most auto makers posted sharp declines from a year earlier, when the US cash-for-clunkers program fueled demand for new vehicles.

August's seasonally adjusted annual sales rate (SAAR) of 10.8 million units fell from 11.6 million in July and was well below analysts' forecasts, according to the Automotive News Data Center. Bloomberg News and Autodata Corp. separately pegged the August SAAR at about 11.5 million units.

After August sales tumbled 21 percent, industry sales are now up just 8 percent from 2009 levels, when demand hit a 27-year low.

“The car market and the overall economy are pretty weak,” said Joe Phillippi, principal of consulting firm AutoTrends in Short Hills, N.J. “Showroom traffic is down. We still have issues on the margin with some people not being able to get credit, and people are nervous.”

Ford Motor Co.'s August sales dropped 14 percent from a year ago-when the federal “cash-for-clunkers” program boosted sales 17 percent. General Motors Co. posted a 25 percent decline. While most auto makers benefited from the “clunkers” program, GM suffered a 20 percent sales decline in August 2009-its first full month after exiting bankruptcy.

The cash-for-clunker program provided government cash incentives of $3,500 or $4,500 for consumers who traded in an older car or truck for a more fuel-efficient vehicle. The federal incentives helped US auto sales end a 21-month skid in August 2009, rising a modest 1 percent above August 2008.

At Toyota Motor Corp., which racked up big sales numbers as a result of the clunkers program, August sales plunged 34 percent. The auto maker's year-to-date sales are now off 1 percent.

“Toyota was expected to report a big year over year decline because it was one of the biggest beneficiaries of cash for clunkers last year, but this month's results are even worse than expected,” said Edmunds.com analyst Michelle Krebs. “Toyota still is suffering a hangover from its numerous recalls.”

Post-clunkers clunk

Honda Motor Co., Nissan Motor Corp. and Hyundai Motor Corp. also posted sharply lower August sales after receiving a lift from 'clunkers' a year earlier.

“We've known that August comparisons would be irrelevant due to the 'cash-for- clunkers' program last year,” John Mendel, executive vice president of sales for American Honda, said in a statement. “The good news is that we continue to see increasing demand for Honda products as customers seek even greater value.”

Chrysler Group L.L.C., which did not benefit as much from the clunkers program and relies more on orders from fleet customers, said August sales rose 7 percent-its fifth consecutive monthly sales gain. Mercedes-Benz parent Daimler AG's August sales also advanced 7 percent.

But at Subaru, sales dropped 23 percent last month-its first decline since May 2009. The company had soared 52 percent a year earlier.

Because of the difficult comparison to a year ago, auto makers and analysts are comparing August sales to July demand to measure the industry's health amid weak economic growth and the nation's high jobless rate.

GM's August sales were down 7.3 percent when compared with July 2010. Ford's August sales were off 7.6 percent from the previous month. Toyota's sales declined 12 percent in August versus July.

Behind GM's results

At Ford, overall car demand dropped 14 percent and SUV and crossover sales fell 26 percent. At the Ford division, sales fell 11 percent, with demand for the Focus compact off 40 percent from a year ago, when 'clunkers' fueled sales of fuel-efficient models.

Mercury-which Ford is dropping by year-end-posted a 23 percent sales dip.

GM said combined August sales of Buick, Cadillac and GMC rose 37 percent from a year earlier, while Chevrolet posted a 22 percent decline.

The auto maker's sales to retail customers fell 29 percent in August, while sales to fleet and rental customers dropped 12 percent.

“Last year's cash-for-clunkers program spiked industry sales in 2009, so results this August were, not surprisingly, a bit mixed,” Don Johnson, vice president for GM's US sales operations, said in a statement. “Importantly, three of our four divisions showed solid gains.”

While retail sales of Chevrolet's full-size trucks and SUVs rose 8 percent last month, demand for some of division's other top-sellers-the Impala, Cobalt, Equinox, Traverse and Camaro-fell sharply from August 2009 levels, GM said.

Chevrolet couldn't match August 2009-when sales were aided by the clunkers program. Chevrolet said the program boosted sales by 86,000 units, with most of those coming during the August portion of the incentive.

Additionally, Chevrolet's 3,000 dealers have low inventories of the Cobalt compact as the division prepares to introduce a new compact-the Cruze-in late September.

Cadillac sales increased 83 percent for the month, and Buick saw a 66 percent gain. GMC was up 12 percent.

Waiting for Labour Day deals

Analysts had projected a SAAR of 11.6 million, according to the average of eight estimates compiled by Bloomberg. That would have been the year's third-highest rate.

J.D. Power and Associates said that the pace of sales to individual customers “slowed considerably” in the last week of August. It had pegged the August SAAR at 11.4 million.

Consumers are avoiding showrooms as fear of a double-dip recession grows following the 27 percent plunge in existing home sales in July, said Mike Wall, an analyst for IHS Automotive. The US unemployment rate in July held at 9.5 percent, near a 26-year high of 10.1 percent.

“When you've got that sentiment, that fear hanging over the market, it makes it a tough sell for consumers” to spend $25,000 or more on a vehicle, Mr. Wall said.

Auto makers also have a tighter hold on inventories and don't feel compelled to pile on discounts to spur sales.

GM said its dealer stockpiles stood at 452,000 units at the end of August -- about 73,000 units higher than August 2009.

In the fourth quarter of 2010, Ford plans to produce 570,000 vehicles -- down from 574,000 in the fourth quarter of 2009. During the third quarter, Ford will build 570,000 vehicles, unchanged from previous plans.

“The Ford plan is to match capacity with real demand, and we continue to monitor the key economic indicators as we make adjustments,” said Ken Czubay, Ford's head of US marketing, sales and service.

Reporter David Barkholz and Bloomberg News contributed to this report, which ran in Automotive News, a Detroit-based sister publication of Tire Business.

From Tire Business (A Crain publication)