August's New Vehicle Sales Could Be Disappointing Due to Hurricane Charley's Devastation

DETROIT August 28, 2004; John Porretto writing for the AP reported that Hurricane Charley's devastation in Florida and apparent diminishing effectiveness of consumer incentives are contributing to a slump in new car and truck sales in August, especially for General Motors and Ford, analysts say.

Depending on the extent of the decline, General Motors Corp. and Ford Motor Co., already saddled with bloated inventories, could be forced to trim fourth-quarter production. That in turn could quickly affect profits: Automakers consider a vehicle sold when it's shipped from the factory to a dealer, not when the dealer reaches an agreement with a buyer.

GM, Ford and other carmakers report August results Wednesday.

"August's sales are disappointing considering the high level of incentives and, more importantly, because of the need to clear out excess inventories," Merrill Lynch analyst John Casesa said in a report.

Non-Big Three sales may be a brighter spot, however. Casesa said sales from companies other than GM, Ford and Chrysler should increase slightly more than 2 percent, with Nissan and Toyota -- both with double-digit sales growth so far this year -- leading the way.

Merrill Lynch expects a seasonally adjusted annual selling rate of 17.2 million units for August, down from 17.9 million a year ago and roughly the same as July's selling rate. Still, Casesa noted, a 17.2 million selling rate would be significantly higher than the year-to-date rate of 16.6 million. Full-year sales for 2003 were 16.7 million.

Casesa said Charley, which struck central Florida earlier this month with 145 mph winds, likely will diminish the selling rate by less than 100,000 units. Florida is the nation's second-largest market for new vehicles.

Ralph Ghioto III, whose family owns Buick, Isuzu and Kia stores in Tampa, said the storm disrupted businesses of all kinds in the middle of the month, but the recovery was under way.

Ghioto said Charley made car buying an afterthought for many Floridians -- and impossible for dealers whose businesses were destroyed -- but the coming months could be a boon for commerce. He cited Hurricane Andrew, which struck Florida in 1992, as an example.

"Once the rebuilding began, the builders and electricians and roofers were buying everything," Ghioto said.

Despite cash rebates of $5,000 to $6,000 on some vehicles, sales appear to have been sluggish in August. Amid new signs the economy may not be growing as quickly as some predicted, analysts say many Americans may be postponing big purchases such as new cars and trucks.

In a research report, Chris Ceraso of Credit Suisse First Boston said his earlier projections called for fourth-quarter output at GM and Ford, the nation's two-largest automakers, to be roughly the same as a year ago. Now, Ceraso said, production could be off 4.5 percent to 6.5 percent versus the year-ago quarter.

"And that may not be enough," he said. "It could take cuts in the 14 percent-15 percent range to truly clear out the inventory overhang by year-end, but we don't expect to see cuts that deep."

Already, GM has said it was trimming production of its Hummer H2 sport utility vehicle, whose sales were off 25 percent through July. Ford's Jaguar division said Friday it would reduce production by 11 percent from now until year's end. Jaguar's U.S. sales were off nearly 6 percent for the first seven months of 2004.

Ceraso expects GM's August sales to be down 4 percent to 6 percent, Ford off 5 percent to 7 percent and Chrysler, buoyed in part by sales of its new 300C sedan, up 1 percent to 3 percent.

"The foreign brands should slow from recent robust results but still remain ahead of the domestic makers, with sales roughly flat versus August 2003," Ceraso said.

So far this year, Big Three business is off roughly 1 percent from a year ago, while Asian brands have seen their sales grow 7 percent. European nameplates are off 5 percent from a year ago in the United States.