WSJ: Truck Sales Sink, Shaking Up Auto Market

[Guy Berger]

The US economy is adjusting to higher gas prices.

I wonder how long it will be before the Chrysler brand is owned by a Chinese or Indian company....

Truck Sales Sink, Shaking Up Auto Market

Big Three Walloped By the Rush to Cars; Honda on the Rise

By JOSÉE VALCOURT and MATTHEW DOLAN

June 4, 2008

U.S. vehicles sales declined 10.7% in May, the result of a plunge in truck sales that is shifting the competitive landscape in the world's largest automobile market.

General Motors Corp.'s sales fell 27%, to 268,892 vehicles, according to Autodata Corp. That pulled GM's market share down to 19.2%, the lowest level in at least 50 years.

MAY U.S. AUTO SALES

Company Vehicles Change Year-To-Date

General Motors 268,892 (28%) (16%)

Toyota Motor 257,404 (4.3%) (3.5%)

Ford Motor 217,268 (16%) (11%)

Honda Motor 167,997 16% 4.8%

Chrysler Group 148,747 (25%) (19%)

GM, a big seller of trucks, used to control half the U.S. market. Now, it is in a much-closer race for No. 1 in car sales with Toyota Motor Corp., which sold 257,404 vehicles. Toyota had a market share of 18.4%.

Ford Motor Co.'s F-150 pickup truck has been the No. 1 seller almost every month over the past three decades. But in May, as consumers flocked to fuel-sipping models, two cars from Toyota and two from Honda Motor Co. outsold the F-150, pushing it down to the No. 5 spot in sales.

The move to cars is "breathtaking," Jim Farley, Ford's group vice president of marketing, said in a conference call. "I would say [it's] the most dramatic shift in customer segmentation potentially in two or three decades."

Ford's sales fell 16%, to 217,268 vehicles.

In a separate conference call, Bob Carter, a group vice president at Toyota, said the Japanese company's assumptions about the U.S. market are now "off the table." Like GM and Ford, Toyota also had expected truck sales to remain healthy; it has invested billions of dollars in a bid to gain share in truck and sport-utility-vehicle segments in the U.S.

May sales of cars and light trucks fell to 1,396,965, Autodata reported. The seasonally adjusted annualized sales pace for May, typically a strong month, was about 14.3 million vehicles, the lowest level since 1994, Autodata said.

In another shift, Honda, one of the few car makers whose sales rose, moved past Chrysler LLC to become the fourth-largest auto maker in May. Honda has outsold the smallest of the Big Three only twice before. Honda's sales rose 15.6% for the month; Chrysler's fell 25%.

Changing Landscape

Ford and GM officials said the shift from trucks reflects a long-term structural change in the U.S. market.

Toyota's Mr. Carter remained wary about setting new projections for truck sales for the rest of the year, saying figures from June will help the company better assess the changing landscape.

Unlike Ford and GM, where the drop-off has led to plans to cut production, lay off workers and idle assembly plants, Toyota officials cautioned that it could be too early to call May's slide a permanent shift in consumer demand.

Toyota officials said they are confident their "core buyer" for full-size pickups remains connected to the construction industry, and the segment will rebound when the housing market does.

"We're confident in its recovery," said Mr. Carter, referring to the full-size truck market, noting that Toyota expects a turnaround in 2009 and 2010. He and other Toyota officials emphasized that people who need trucks won't buy Corollas as a substitute, and the company is willing to wait for demand to pick up.

"This is a short-term phenomenon that the industry has to weather through," Mr. Carter said.

--Jeff Bennett contributed to this article.

Write to Josée Valcourt at josee.valcourt@wsj.com and Matthew Dolan at matthew.dolan@wsj.com

[Chuck Nessa]

This seems to have been written before the GM news today.

[Guy Berger]

This seems to have been written before the GM news today.

Nope - definitely written afterward. There was a separate article on GM's announcement earlier this morning.

<h1 class="articleTitle" style="margin: 0px;">GM Shifts Its Strategy Into Reverse</h1> Company Plans to Shut Four Plants

As Truck Sales Fall; Hummer Up for Sale? By JOHN D. STOLL

June 4, 2008

Wilmington, Del.

After three years of restructuring and tens of billions of dollars in losses, General Motors Corp. shifted direction once again on Tuesday, unveiling plans to close four truck plants and possibly sell its Hummer brand.

Associated Press GM shareholder and Buick car salesman James Dollinger, right, points toward CEO Rick Wagoner, left, during the GM shareholders meeting Tuesday. The moves were forced on GM by soaring gasoline prices, which are prompting more consumers to opt for more fuel-efficient vehicles. The struggling auto maker must now try to rapidly reduce its dependence in North American truck sales, once seen as the key to its turnaround.

The abrupt shift, outlined at GM's annual meeting, is an acknowledgment that Chairman and Chief Executive Rick Wagoner miscalculated in 2005 when he bet big on trucks. That plan, based on expectations of steady vehicle sales and gas prices in the U.S. through 2008, won the backing of GM's board and helped Mr. Wagoner prevail in a 2006 boardroom battle with then-shareholder Kirk Kerkorian.

But like many in the auto industry, Mr. Wagoner did not anticipate a rise in gas prices to $4 a gallon, nor did he foresee the slump in the U.S. economy brought on in part by the housing crisis. Both factors have damped vehicle sales and caused consumers to shift away from trucks to cars.

This rising consumer focus on fuel efficiency is shifting the competitive landscape in the U.S. auto industry. GM, which dominated the U.S. market for decades, is now in a neck-and-neck race with Toyota Motor Corp. Hurt by declining truck sales, GM in May saw its U.S. market share fall to a new low of 19.2% -- just a nose ahead of Toyota's.

PLANT CLOSURES

Oshawa Truck Assembly in Canada, which builds the Chevy Silverado and GMC Sierra, will likely cease production in 2009, GM said. Moraine, Ohio, which builds the Chevy TrailBlazer, GMC Envoy and Saab 9-7x, will end production at the end of the 2010 model run, or sooner. Janesville, Wis., will cease production of medium-duty trucks by the end of 2009, and of the Tahoe, Suburban and Yukon in 2010, or sooner. Chevrolet Kodiak medium-duty truck production will also end in Toluca, Mexico, by the end of this year. • Map: North American Auto Plants GM's decision to scale back truck production means that losses are likely to continue for at least another two years, and possibly longer -- prolonging one of the worst stretches of corporate losses in history. Between 2004 and 2007, GM lost more than $55 billion, and in this year's first quarter, it reported a loss of $3.25 billion.

Mr. Wagoner outlined the plan before a group of about 80 shareholders gathered Tuesday in Wilmington for the annual meeting. He told them that his turnaround strategy for the U.S. has "made significant progress on all fronts." Fixed costs have fallen significantly, sales are rising in emerging markets, and GM is pushing to produce a new plug-in vehicle by 2010, he said.

Mr. Wagoner, took over as chief executive in 2000. His track record has been rocky. GM's stock, which closed Tuesday at $17.58 in 4 p.m. composite New York Stock Exchange trading, is now near a 26-year low. GM's market share in May was about one-third lower than it was when he took over. Its market valuation now stands at $9.87 billion -- less than one-quarter of what it was in 2000.

Some shareholders are frustrated. "You don't get a sense that the General Motors crowd really gets it," said Sister Patricia Daly, who represents the Sisters of Saint Dominic of Caldwell, N.J., a religious order that owns GM shares, in an interview on Friday. "Even in the 1990s, it was clear they weren't going to be able to sell the big SUVs for 15 years without any impact."

On Tuesday, Jim Dollinger, a small investor and auto-sales consultant, spotted George Fisher, GM's lead independent director, in the hotel where the shareholder meeting took place. He chided Mr. Fisher for what he characterized as the unwillingness of GM's management to listen to dealers and shareholders.

Mr. Fisher responded that the board would be glad to listen to Mr. Dollinger but did not like his brash approach.

In an interview last week, Mr. Fisher said the board supports Mr. Wagoner and believes the CEO is taking the necessary steps to fix the company.

Other shareholders were supportive of management on Tuesday. "GM has for a long time shown it can lead in truck designs. Now it needs to show it can do the same with car designs," said Carol Moreno, an analyst with TCW Group Inc., which owned 16 million GM shares as of March 31 and has added to the position this quarter.

As far back as 2005, when gas prices were rising past $2 a gallon, SUV sales were falling, and many in the industry were saying the SUV era was coming to an end.

Mr. Wagoner disagreed. That year, he accelerate the launch of the company's new trucks and SUVs by six months. The market for large SUVs is "stable, not shrinking," he said at one press conference.

Other auto makers, including Toyota, also thought demand for trucks would remain healthy. But GM's crosstown rival, Ford Motor Co., had a dimmer view of truck sales, and began downsized its truck capacity.

Reuters GM is conducting a strategic review of the Hummer and will consider even selling the brand. In 2007, GM's turnaround effort was lifted by booming sales in China, Latin America and other emerging markets. The company began trying to position itself as more than just a seller of gas-guzzling trucks. It unveiled a concept for a battery-powered car, called the Chevrolet Volt, that drew praise from environmentalists. It added a sprinkling of hybrids to its lineup, including hybrid versions of its big SUVs.

But gas prices started creeping up. Sales of big SUVs, which are made from the same components as those used in full-size pickup trucks, began falling sharply. In this year's first quarter, the entire industry was on pace to sell only about 500,000 full-size SUVs for the full year -- half as many as were sold in 2003. To produce that many, the industry would need only two plants. GM alone has two plants making big SUVs.

Last month, GM announced it would slash production at four pickup-truck plants in the second half of the year. Mr. Wagoner gave up day-to-day oversight of GM's global auto operations, turning it over to Frederick "Fritz" Henderson, who was promoted from chief financial officer and president.

By last month, gas prices had climbed to $4 a gallon in many parts of the country, and even some hard-core pickup buyers began defecting to smaller vehicles. As the month wore on, Messrs. Wagoner and Henderson concluded the truck market was in a "structural" or long-term decline. GM couldn't continue making trucks in six plants, they decided.

On Tuesday, Mr. Wagoner declined to forecast when GM will return to profitability.

Write to John D. Stoll at john.stoll@wsj.com

[Chuck Nessa]

I said written, not published. I still think the piece reads as written earlier. I think he'd have made a couple of points stronger.

[Joe G]

No time to read any of this now, but I'm wondering why GM has to close the plants down (permanantly?) rather than retooling them to make a different product.

[BFrank]

It's just amazing that when asked to make more fuel efficient cars in the past, they big 3 always fought back by saying that it would cost too much money. Foresight is NOT their strong suit.

[ejp626]

It's just amazing that when asked to make more fuel efficient cars in the past, they big 3 always fought back by saying that it would cost too much money. Foresight is NOT their strong suit.

Yes, but you could also say that about all the yahoos in the US that kept buying the frigging SUVs and kept GM and Ford from making the tough decisions then -- and spewed out another few million tons of unnecessary emissions into the atmosphere. I'd say they all deserved what they are getting now, but of course this just puts Michigan in an even deeper hole.

No time to read any of this now, but I'm wondering why GM has to close the plants down (permanantly?) rather than retooling them to make a different product.

I'm certainly no expert on assembly lines, but I think switching over from wide bodied SUVs to the compact cars is not cheap, esp. when they do have plants that already specialize in smaller cars. Of course from the automakers' perspective they can also use this as an excuse to move away from unionized labor in the midwest to the right-to-work plants in the south.

[Jim Alfredson]

The move to cars is "breathtaking," Jim Farley, Ford's group vice president of marketing, said in a conference call.

Really? Has your head been in the sand the last 8 years?

That chart is really interested. So how can anyone look at this and claim with a straight face that Bush's administration has nothing to do with the rise in gas prices?

Seriously... look at the miles driven. It has sat still for the last three years and yet... amazingly enough, the prices just keep going up.

Supply and demand my ass.

[BFrank]

It's just amazing that when asked to make more fuel efficient cars in the past, they big 3 always fought back by saying that it would cost too much money. Foresight is NOT their strong suit.

Yes, but you could also say that about all the yahoos in the US that kept buying the frigging SUVs and kept GM and Ford from making the tough decisions then -- and spewed out another few million tons of unnecessary emissions into the atmosphere. I'd say they all deserved what they are getting now, but of course this just puts Michigan in an even deeper hole.

"...kept GM and Ford from making the tough decisions..."

Say what? I thought corporate execs were paid the BIG buck just for that reason. If not, then what ARE they paid for?

I guess short-sightedness is the name of their game.

[Chas]

That chart is really interested. So how can anyone look at this and claim with a straight face that Bush's administration has nothing to do with the rise in gas prices?

Seriously... look at the miles driven. It has sat still for the last three years and yet... amazingly enough, the prices just keep going up.

Supply and demand my ass.

Since a little more than half the cost of a gallon of gas in the U.S. is a function of crude oil prices , and since crude oil prices have recently risen at a 100% annual rate , it is the global supply and demand for crude oil that explains the rise of U.S. gas prices in the face of falling U.S. demand . In Europe and other regions where crude oil prices make up as little as a fifth of the pump price , gas prices haven't risen nearly as dramatically as in the U.S. . With respect to the global supply and demand for crude oil , it is well to remember that annual miles driven are increasing rapidly in the developing world even as they are declining in the U.S. .

[BruceH]

It's just amazing that when asked to make more fuel efficient cars in the past, they big 3 always fought back by saying that it would cost too much money. Foresight is NOT their strong suit.

Now THERE'S an understatement. The CEO's and corporate boards of the big 3 have driven their companies into the ground, and they deserve to lose market share.

[PHILLYQ]

The big auto makers had over 30 years(1974-5 oil embargo) to figure how to make smaller cars profitably and they wound up with SUVs- the American auto industry might be the most mismanaged industry ever.

[jazzypaul]

The big auto makers had over 30 years(1974-5 oil embargo) to figure how to make smaller cars profitably and they wound up with SUVs- the American auto industry might be the most mismanaged industry ever.

I'll agree that the American Auto industry is completely screwed.

Unfortunately, they were only reacting to market demands.

Wives want minivans (which aren't exactly great on gas either, mind you). But hey, now that that Explorer comes with a third row seat, let's get that instead.

Husbands don't want to be seen in kid haulers, but they still need to haul around the kids. And if you're gonna get a truck, you'd better get it with the four wheel drive package that you'll use twice a year, which wastes even more gas.

Let's face it, there IS a need for bigger vehicles. But that just begs the question: where is the electric car? Where is the hydrogen car that Honda could build tomorrow? Why aren't we seeing hybrid editions of every car that gets sold in America? Ditto for diesel.

[catesta]

The big auto makers had over 30 years(1974-5 oil embargo) to figure how to make smaller cars profitably and they wound up with SUVs- the American auto industry might be the most mismanaged industry ever.

Let's be fair here. Remember what a Cadillac looked like the the mid 80s?

They did respond, but the demand for large vehicles quickly returned with a vengeance.

The U.S. automakers get all the heat and yet Toyota in this article clearly takes the position of, "we're not going to panic and sales for the big stuff will be up again real soon".

I don't see any of the Foreign manufacturers backing off production of full size gas guzzling models.

I do however see them constantly praised as models of efficiency. But I wonder, was the U.S. auto industry so badly mis-managed? Some perhaps, but what shape would Nissan and Honda be in of they had to pay bloated pensions, healthcare for ex-employees and inflated wages for current? After all, their workers are not union.

When people were cheering the UAW for going on strikes and sticking to the man, they forgot something. Maybe it was too expensive to re-tool and downsize models because the union still insisted on $28/hr for the guy washing the windshields. Meanwhile, for many years they were cranking out a shit product while demanding higher wages. I realize some of that shit back then you can maybe blame on engineers, designers and upper management, but what about the dude putting on the drive shaft half ass?

Well, he's retired now with a pension, full healthcare, AND he gets a 40% ex-employee discount on a new car for himself plus all his friends and family.

[Chuck Nessa]

Pensions and health care expenses have little to do with product offerings and advertising. It is about product.

They friggin' blew it all.

[BFrank]

I highly recommend renting the film, Who Killed the Electric Car. Very insightful about the auto industry in general.

[catesta]

Pensions and health care expenses have little to do with product offerings and advertising. It is about product.

They friggin' blew it all.

Yeah, okay. GM has 21% market share in the U.S. and number one in sales worldwide and their losing money.

Costs have nothing to do with it?

North American Workforce

Source: GM & Toyota, Dec. 2005

GM:

White collar: 36,000

Production: 106,000.

Retirees: 460,000

Toyota:

White collar: 17,000

Production: 21,000

Retirees: 1,600

Average Hourly Salary for Non-Skilled, Assembly Line Worker

Source: Center for Automotive Research

GM:

$31.35/hour

NOTE: Includes idle workers still on payroll and those on protected status.

Toyota:

$27/hour

NOTE: Includes year-end bonus.

Health Care Costs per Vehicle in 2004

Source: 2005 Harbour Report & A.T. Kearny Inc.

GM:

$1,525

Toyota:

$201

Average Labor Cost per U.S. Hourly Worker

Source: GM & Toyota

GM:

$73.73

Toyota:

$48

Worldwide Sales in 2005

Source: GM & Toyota

GM:

9.2 million

Toyota:

8.2 million

[Joe G]

The move to cars is "breathtaking," Jim Farley, Ford's group vice president of marketing, said in a conference call.

Really? Has your head been in the sand the last 8 years?

That chart is really interested. So how can anyone look at this and claim with a straight face that Bush's administration has nothing to do with the rise in gas prices?

Seriously... look at the miles driven. It has sat still for the last three years and yet... amazingly enough, the prices just keep going up.

Supply and demand my ass.

Jim - check this article out:

http://www.energybulletin.net/45250.html

It focuses on Great Britan, but the implications for the US are clear. I think supply and demand is an issue.

After the oil shocks of the 70s, the US and the UK were lucky to be able to exploit new oil reserves situated on their territory - in Alaska or the North Sea. These finds, the last major production areas found on the planet to date, flooded the market in the 80s and 90s, duly bringing prices down, and prompting the Economist to write, in March 1999: "The price of oil has fallen by half in the past two years, to just over $10 a barrel. It may fall further."

Edit to add another link: http://www.princeton.edu/hubbert/current-events.html

Edited June 6, 2008 by Joe G

[catesta]

A very interesting read.

[The Magnificent Goldberg]

Yes, interesting.

Well, if American families haven't got enough money to pay their mortgages after their petrol and food bills are paid, they'll just have to eat less.

Seems like cuts in health bills might result.

MG

[Guy Berger]

The big auto makers had over 30 years(1974-5 oil embargo) to figure how to make smaller cars profitably and they wound up with SUVs- the American auto industry might be the most mismanaged industry ever.

Let's be fair here. Remember what a Cadillac looked like the the mid 80s?

They did respond, but the demand for large vehicles quickly returned with a vengeance.

The U.S. automakers get all the heat and yet Toyota in this article clearly takes the position of, "we're not going to panic and sales for the big stuff will be up again real soon".

I don't see any of the Foreign manufacturers backing off production of full size gas guzzling models.

I do however see them constantly praised as models of efficiency. But I wonder, was the U.S. auto industry so badly mis-managed? Some perhaps, but what shape would Nissan and Honda be in of they had to pay bloated pensions, healthcare for ex-employees and inflated wages for current? After all, their workers are not union.

When people were cheering the UAW for going on strikes and sticking to the man, they forgot something. Maybe it was too expensive to re-tool and downsize models because the union still insisted on $28/hr for the guy washing the windshields. Meanwhile, for many years they were cranking out a shit product while demanding higher wages. I realize some of that shit back then you can maybe blame on engineers, designers and upper management, but what about the dude putting on the drive shaft half ass?

Well, he's retired now with a pension, full healthcare, AND he gets a 40% ex-employee discount on a new car for himself plus all his friends and family.

No doubt the legacy costs are hurting these guys. But let's be frank. The Big 3 have now captured less than 50% of the market share in the US for the 2nd month in a row. For the first time in 16 years the best-selling light vehicle in the US is not the Ford F-series pickup, which is being outsold by 4 popular "Japanese" sedans (I would guess that most are produced domestically, hence the quotes). Honda has outsold Chrysler for only the 2nd time ever and Toyota is within striking distance of GM.

The Big 3 are very poorly prepared for the car market that lies ahead. (And it's telling that Toyota, the Japanese company that moved most aggressively to compete with these guys, is the one that is struggling the most.)

Guy

[BruceH]

I highly recommend renting the film, Who Killed the Electric Car. Very insightful about the auto industry in general.

I saw that when it first came out on the big screen. Hell of an interesting film.

[Jim Alfredson]

A spammer originally brought this back up, but I deleted their post.

BUT... I do think it's interesting that here we are a mere 6 months later and gas prices are less than half what they were.

Less than half.

I'll say it again: Supply and demand my ass!

http://www.truthout.org/011809Z

Mr. Bush further deregulates commodity futures

midwifing the birth of unregulated oil markets

which just like Enron jack up prices to an all time high

until Congress and both presidential candidates call for regulations

and the prices fall

deregulating financial services and lax enforcement of remaining rules

created a housing bubble

creating the mortgage crisis

creating then a credit crisis

devastating industries that rely on credit

from student loans to car dealers

[Joe G]

Volitile price fluctuations can be a part of supply problems, too.

[WorldB3]

It's just amazing that when asked to make more fuel efficient cars in the past, they big 3 always fought back by saying that it would cost too much money. Foresight is NOT their strong suit.

Didn't we go through all this in the 70"s?

The big 3 fought against having to put seat belts in cars, why would they compromise on emission standards. I hate to see people lose jobs but enough with their bs.