U.S. Auto Sales June 2007 Wrap Up

TOKYO/DETROIT July 4, 2007; Chang-Ran Kim and Kevin Krolicki writing for Reuters reported that General Motors Corp. on Tuesday posted a steeper-than-expected 24 percent drop in U.S. sales in June as local automakers lost share to Toyota Motor Corp. and other Japanese brands, and demand sputtered overall in the face of high gas prices and a weak housing market.

Shares of GM dropped more than 4 percent after the holiday-shortened close of trade on the New York Stock Exchange in reaction to the sales shortfall and indications the largest U.S. automaker would have to respond with bigger discounts.

Sales for GM's Detroit-based rivals also slid for June, while Toyota, Honda Motor Co. and Nissan Motor Co. all gained ground after taking the unusual step of increasing spending on showroom discounts.

"The sales boost (for the Japanese brands) came from the big incentives spending," said Atsushi Kawai, auto analyst at Mizuho Investors Securities in Tokyo. He added he expected a gentle rise at top Japanese brands on average for the rest of the year.

Nissan's sales gained an industry-leading 18 percent also in reaction to a sharp drop the year before when engine fires had forced the company to halt sales of the big-volume Altima sedan.

Toyota's sales gained 6 percent, and Honda's rose 7 percent.

Ford Motor Co. sales were down 11 percent, while Chrysler's fell 5 percent. Both declines by the loss-making Detroit-based automakers were in line with cautious analyst expectations as the industry closed out a weak second quarter.

Industry-wide first-half sales were down 1.5 percent, although Toyota bucked the downtrend with a 9 percent gain over the six-month period. That put it ahead of Ford for the U.S. market's No. 2 spot as it outsold GM in passenger cars.

TOYOTA MUSCLES UP ON TUNDRA

In a sign of Toyota's new-found muscle, the Japanese automaker rattled Detroit by offering zero-percent financing and cash rebates on its all-new Tundra pickup truck in June.

That aggressive discounting caused sales of Toyota's new full-size truck to more than double in June, stealing share in the last U.S. market segment dominated by the Detroit Three.

"The bottom line was that it was a tough quarter and a first half that was weaker than we expected," said GM sales analyst Paul Ballew.

GM was the only major automaker to throttle back on incentive spending compared with May, according to industry data, and it paid the price.

Ballew said some of GM's shortfall could be attributed to lost sales as its own all-new Silverado truck went head-to-head against the heavily subsidized Tundra.

"What we saw in the month was beyond what we could have imagined," Ballew said, calling Toyota's margin-sacrificing sales strategy "a bit of a curveball."

Edmunds analyst Jesse Toprak said GM would have to respond with more aggressive discounts in order to avoid a pile-up of inventory at a time when automakers typically try to make room for upcoming models.

"This is a bit of a shock and I'm sure it's going to produce some new marketing thinking at GM," he said.

Toyota said that by playing hardball with Tundra pricing it was just responding to a tough market, not signaling a shift for a company better known for controlling supply and allowing hot-selling models like the hybrid Prius to command a premium.

"It's not part of a change in pricing strategy," Toyota North American sales chief Jim Lentz told reporters.

Japanese auto stocks reacted little in Tokyo. Toyota ended up 0.3 percent, Honda down 0.4 percent and Nissan down 0.5 percent on Wednesday.

SMALL IS BEAUTIFUL?

With gasoline prices hovering just below $3 per gallon in the United States, sales gains for passenger cars and more-fuel-efficient car-based crossover vehicles outpaced light trucks, a shift that has favored Japanese car makers.

Honda, for instance, recorded a 34 percent jump in sales of its Civic model.

Chrysler, meanwhile, was hurt by sales declines for its market-leading minivans and Ram pickup trucks despite steep discounts on both throughout the month.

Chrysler's sales decline came in one of its last months as a unit of Germany's DaimlerChrysler AG. It is being taken private by Cerberus Capital Management in a $7.4 billion deal expected to close this quarter.

Chrysler has managed to hold U.S. market share steady at just under 13 percent this year, aided by market-leading incentives. The automaker said on Tuesday it was offering a new package of zero-percent financing on all its vehicles with $1,000 in bonus cash on select models through the end of July.

For its part, Ford said its first monthly gain in showroom sales since October showed it was on track to stabilize its U.S. market share as it cuts back on sales to commercial fleets and shutters factories.

Ford, which offered a package of interest-free loans and rebates in June, managed to hold sales of its best-selling vehicle -- the F-Series pickup truck -- almost flat in June.

Ford has staked its turnaround effort on a new line-up of crossovers like the Ford Edge, and the automaker said sales in that category jumped 83 percent.

Monthly sales results for the automakers were adjusted for an additional selling day in June compared with a year ago.

Additional reporting for Reuters by Poornima Gupta and Jui Chakravorty