US Auto Sales Slump to 16-year Low in July 2008

DETROIT Aug 1, 2008; Dee-Ann Durbin writing for the AP reported that U.S. auto sales slumped to a 16-year low in July as automakers failed to keep up with consumers' growing demand for smaller, more fuel-efficient vehicles. While production changes may help that problem, trouble in the credit and auto leasing markets will continue to take a toll on sales.

General Motors, Ford, Toyota and other automakers said Friday that their U.S. sales fell by double-digits. Nissan Motor Co. was the only major automaker to report a gain, with truck sales up 18 percent thanks in part to the new Rogue crossover and a boost in incentives. Nissan's overall sales rose 8.5 percent.

Automakers were expecting a slide in July as high gas prices continued to cut into sales of trucks and sport utility vehicles and new troubles in the auto leasing sector further wrecked consumers' confidence. July's seasonally adjusted sales rate — which shows what sales would be if they continued at the same pace for the full year — was 12.5 million vehicles, according to Autodata Corp. That's down from 17 million as recently as 2005.

Automakers expect things to get worse before they get better.

"We expect the second half of 2008 will be more challenging that the first half as economic and credit conditions weaken," Ford's marketing chief, Jim Farley, said in a statement.

Mark LaNeve, GM's vice president of North American sales, said tightening standards for buyers with poor credit are costing the automaker sales of about 10,000 vehicles per month.

Customers looking for vehicle financing options were further squeezed late last month, when Chrysler LLC announced its financial arm would get out of the leasing business by the end of July. Automakers trying to sell trucks and SUVs returned by leaseholders are suffering big losses because the vehicles' values have declined far more than projected.

Following Chrysler's lead, Ford told dealers it would raise the price of leases on some trucks and SUVs, while GMAC Financial Services said it would stop offering leasing incentives in Canada. LaNeve said Friday that GM will watch the competition to decide whether it makes further leasing changes. Toyota said it has no plans to change its leasing strategy.

Farley said he doesn't expect the changes to have a big impact on sales because automakers will start countering the higher lease costs with an escalation of sales incentives.

That rush began Friday, when Chrysler announced new incentives for August, including a 72-month financing plan with monthly payments similar to those of 36-month lease payments.

But even if automakers get buyers into the showroom, they're having trouble matching their production with growing demand for smaller vehicles. Small cars represented 27 percent of sales industrywide in July, up from 21 percent in the same month last year, according to George Pipas, Ford's top U.S. sales analyst.

Mike DiGiovanni, GM's executive director of global market and industry analysis, said if supply constraints remain at the same pace for the rest of this year, it would cost the industry about 300,000 vehicle sales, but as the year goes on and automakers adjust production, he expects that number to go down.

Toyota said Friday it is accelerating production of four-cylinder engines and boosting production of the subcompact Yaris and the small Corolla by 40,000 units through October. Honda Motor Co. said it will adjust production of the hot-selling Civic, while GM is adding shifts to make the fast-selling Chevrolet Malibu and Cobalt cars, and Ford is boosting production of the Focus.

But meanwhile, automakers are suffering. General Motors Corp. said its July sales plunged 26 percent, led by a 35 percent decline in sales of trucks and SUVs. Some car models showed strength, with Chevrolet Malibu sales jumping 79 percent from the same month a year ago. But even GM's car sales fell 12 percent as the company failed to keep up with demand for smaller models.

Earlier Friday, GM reported a $15.5 billion second-quarter loss, the third-worst quarterly performance in its history, largely due to North American sales losses and expenses from a massive restructuring plan.

Ford Motor Co. said its U.S. sales fell 15 percent compared with the same month a year ago. Its car sales were flat, while sales of Ford's trucks and SUVs continued their steep decline, falling 22 percent.

Ford's bright spot was the Focus, which saw sales rise 16 percent in July.

Despite its fuel-efficient lineup, Toyota Motor Corp. said its sales fell 12 percent last month, led by a 27 percent drop in truck and SUV sales. Sales of its Prius hybrid fell 8 percent as the Japanese company failed to keep up with growing demand for the fuel-efficient car.

Chrysler, whose lineup is more heavily tilted to trucks and SUVs than any other major automaker, said its sales fell 29 percent, with truck and SUV sales down 30 percent. Chrysler said that was partly due to cuts in low-profit sales to fleets, but even the company's most fuel-efficient model, the Dodge Caliber, saw sales slide 9 percent.

Still, Chrysler remained upbeat, saying retail sales — or sales not to fleets — rose between June and July. The privately held company also said Friday it earned $1.1 billion before taxes in the first half of the year and is ahead of its financial goals thanks to aggressive cost-cutting.

Even Honda, which has reported sales increases in the last few months as consumers flock to its fuel-efficient cars, said sales fell 2 percent in July. Honda's car sales were up 14 percent, but results were dragged down by a 22 percent drop in truck and SUV sales.

The Associated Press reports unadjusted auto sales figures, calculating the percentage change in the total number of vehicles sold in one month compared with the same month a year earlier. Some automakers report percentages adjusted for sales days. There were 26 sales days last month, two more than in July 2007.