A Weak Economy and High Gas Prices Cause Auto Sales to Stall

By Jason Simpkins

Associate Editor

High gas prices and fading consumer confidence took a heavy toll on the automotive industry in March, as sales for each of the four largest automakers plummeted.

General Motor Corp.'s (GM) sales tumbled 19%, when analysts had only expected a 12% drop. Ford Motor Co.'s (F) U.S. sales fell 14%. Toyota Motor Corp (TM) and Honda Motor Co. (HMC) saw their sales slip 10.3% and 3.2% respectively. Combined U.S. automotive sales dropped 12%.

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As disappointing as the figures were, there may be more pain in store for automakers as the economy and consumer sentiment continue to deteriorate. The research firm Global Insight Inc. projects U.S. sales will bottom out in the second quarter, at a seasonally adjusted annual rate of 14.8 million vehicles sold. The rate was 15.22 million in March, down from 16.29 million a year earlier.

"We definitely have the second quarter the worst," Rebecca Lindland, an analyst at Global Insight told the International Herald Tribune. "All of this year is going to be a challenge. Until the credit crunch eases and until consumers feel better about themselves, I just don't see a recovery."

GM recorded shortfalls in seven of its eight divisions. Sales of the Chevrolet Silverado pickup, the company's best selling vehicle, fell 24% from last year. Ford's F-Series pickups also saw a 24% drop in U.S. sales, as contracting work has dried up in response to the housing slump, and record high gas prices made passenger cars more appealing.

Chrysler LLC, a company largely dependent on its pickup, minivan, and SUV sales had a 19% deficit. Overall, passenger cars outsold light trucks for the first time since May 2002, Autodata Corp. reported.

Sales by the three Detroit-based companies are down 10.4% this year, as their share of the U.S. market dwindled to 48.4%.

"I don't know if I can take another March like this one," said Chrysler Vice President Steven Landry.

However, foreign car manufacturers didn't fare any better in a tough U.S. market. Toyota, which trails only GM in market share, sold 217,730 vehicles last month, a 10.3% drop, and the company's fourth straight monthly deficit. The Japanese automaker said its primary division lost 9.8% and its Lexus luxury brand fell 14%. 

"We're not immune to economic cycles and downturns in the automotive industry," said Robert Carter, head of the company's Toyota brand division. "We hope to sustain sales somewhere around the same level as last year."

Toyota announced Tuesday that it was revising its forecast downward for total industry sales this year to a figure below 16 million units for the first time in 10 years.

GM and Ford have not revised their forecasts but will strongly consider doing so if no improvement is seen in coming months. Michael DiGiovanni cited the economic stimulus checks, which will provide many Americans with additional disposable income as "the most important reason we haven't changed our forecast."

Though, few analysts believe the $600 checks going out to most Americans will be enough to boost auto sales. Most believe high gas prices and a stagnant, if not shrinking, U.S. economy will continue to batter the automotive industry.

"Gas prices are a major consideration for buyers, and if they're going up, they're just more inclined to hang on to their older vehicle," Chris Hopson, also an analyst with Global Insight Inc., told Bloomberg. "People just feel they don't have as much money as they once did."

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