Thursday, Jul. 02, 2009

Auto slump leveling off

4 carmakers report smallest sales decline of the year in June

U.S. car and truck sales showed signs of stabilizing in June after a year of sharp declines, but every major automaker except Honda Motor Co. reported lower sales than in May.

Still, year-over-year declines last month slowed for four of the six major carmakers, with Ford Motor Co. reporting the smallest drop in a year at 10.7 percent when compared with June 2008.

Even Chrysler, which emerged from bankruptcy protection early in June, saw its year-over-year sales decline, and analysts say that's among the signs that an auto industry slump that began with $4 per gallon gasoline last summer could be leveling off.

"It is unlikely things will get any worse," said Jesse Toprak, executive director of industry analysis for the auto Web site Edmunds.com.

Factors such as a slowly improving economy and government incentives of up to $4,500 to trade in inefficient clunkers for new vehicles could lead to modest improvements in the second half of the year, he said.

And while Chrysler's sales results were dismal, the figures were roughly in line with analyst estimates and reflect a company that is in a major transition following bankruptcy protection and new focus on more fuel-efficient vehicles.

"At a time when they are emerging from bankruptcy and trying to reinvent themselves, it is not a huge surprise," Toprak said.

Toprak said affordability and gas prices that rose from $2.28 per gallon in May to $2.64 in June boosted sales of compact cars, hybrids and compact sport utility vehicles.

Families and consumers looking for larger vehicles also are leaning more toward minivans because of the practicality when compared to alternatives such as low gas mileage SUVs, he said.

Economists say there are signs that the economy is recovering, with housing starts rising more than expected in May and wholesale prices remaining in check. But the Conference Board reported Tuesday that consumer confidence fell unexpectedly in June.

"We're making steady progress," Jim Farley, Ford's group vice president of marketing, said in a statement. "We remain grounded, however, given challenging in- dustry and economic conditions."

Ford's year-over-year sales drop was the smallest of the six largest automakers. General Motors Corp. sales slid 33.4 percent despite incentives and discounts on its Pontiac brand, while Toyota Motor Corp. sales were off 32 percent. Honda Motor Co. saw a 30 percent decline because of extremely strong small-car sales last June when gasoline was above $4 per gallon. Nissan Motor Co. reported a narrower decline than in previous months, down only 23 percent.

GM's decline improved when compared with previous months even though it entered Chapter 11 bankruptcy protection June 1. GM plans to sell or close Pontiac, Saturn, Hummer and Saab to focus on four core brands -- Chevrolet, Cadillac, GMC and Buick.

At Chrysler, though, the company sold only 68,297 cars and trucks last month as it emerged from bankruptcy protection, and many of those were due to strong incentives of more than $4,800 per car, according to Edmunds.

Analysts predict that June sales, adjusted for seasonal variances and multiplied to determine an annual rate, could top the 10 million mark for the first time this year. During several months earlier in 2009, U.S. car and truck sales dropped to a rate of about 9 million vehicles, a huge reduction from more than 16 million as recently as 2007.

But any jump in the annual rate could be fueled by fire-sale prices at 789 Chrysler dealers that were fired by the company during the bankruptcy process and told to get rid of their inventory by June 9. Also, with GM dropping its Pontiac brand, incentives will rise on those models.