March 4, 2009 - February Auto Sales

Auto Sales Plunge as Buyers Snub Incentives

41% Decline in February Darkens Outlook for Battered U.S. Carmakers

Already Bleak, Auto Sales Take a Fall in February

Despite their offers of deeper discounts, automakers had more trouble luring shoppers into showrooms in February, when vehicle sales fell to their lowest level in 28 years.

Auto companies, which reported sales figures Tuesday, had hoped the market would start to stabilize after months of falling sales. Instead, industry sales slipped 4.9 percent from January, and dropped 41 percent from February of last year.

Every major automaker reported significant declines, and analysts said there was little reason to expect even a mild recovery in the months ahead.

“It’s just stunning how horrible the market is now,” said Rebecca Lindland, an analyst with IHS Global Insight. “We are not expecting to see sales recover at all until the consumer recovers.”

Sales in February represent an annualized rate of 9.1 million vehicles, the lowest figure recorded since December 1981, according to MotorIntelligence.com, which tracks sales.

The decline occurred even as auto companies discounted their vehicles by an average of $2,900 — an 8 percent jump from a month earlier, according to the auto research Web site Edmunds.com. Two years ago, the average incentive was about $2,200, Edmunds said.

The industry has long relied on big discounts to entice consumers in a difficult sales environment. But with unemployment rising and housing prices still depressed, they are not as effective.

“Incentives are helping the few buyers who are in the market to make a purchase, but they are not drawing new buyers at all,” Ms. Lindland said.

Sales for the month were down 53 percent at General Motors, 48 percent at the Ford Motor Company, 44 percent at Chrysler, 40 percent at Toyota and 38 percent at Honda.

G.M. and Ford both said the steep declines would force even more production cuts at their plants. The companies expect their second-quarter production schedules to be at least one-third lower than in the same period in 2008.

Ford’s senior United States economist, Emily Kolinski Morris, said February’s decline was particularly disappointing, given that sales had been relatively flat on a month-to-month basis since October.

“It implies that we did not reach the bottom,” Ms. Kolinski Morris said. “It may be that this month is now the bottom, but there’s no anchor on the economic horizon to allow us to make that call conclusively.”

The drastic slide in sales, which accelerated with the credit crisis last fall, has wreaked havoc on the financial health of auto companies around the world.

G.M. and Chrysler are subsisting on a combined $17.4 billion in government loans, and seeking another $21.6 billion in federal aid to avoid bankruptcy. European auto companies, as well as the Japanese stalwart Toyota, have also requested emergency assistance from their home governments.

Auto executives said Tuesday that the falloff in February increased the need for government support.

G.M., for example, has submitted a restructuring plan to the Obama administration that suggests it will break even if annual industry sales fall in a range of 11.5 million to 12 million vehicles. Last year, the industry sold 13.2 million vehicles, an 18 percent drop from 2008.

“The February numbers are clearly a step down from where we have been running the last four months,” said Michael C. DiGiovanni, G.M.’s chief sales analyst. “These are obviously unsustainable levels, which are causing almost every auto manufacturer across the world to look for government aid.”

Brian Johnson, an analyst with Barclays Capital, said in a note to clients that the dismal selling rate “at least reinforces the case to Washington that the unprecedented industry conditions should justify a continued federal bailout.”

Chrysler led the industry in incentives during February, with an average of $5,500 in discounts on each vehicle sold — which Edmunds said amounted to about 20 percent of the overall price of each car.

The company’s head of sales, Steven J. Landry, said the discounts helped Chrysler’s retail sales, but not enough to offset a huge drop in sales to fleet customers.

To save money, consumers are moving to used cars. In February, an estimated 27 percent of people who visited a dealership intending to buy a new car opted to buy a used model instead, according to Edmunds. That compares with a 16 percent shift to used cars in recent months.

Tyler Corder, the chief financial officer of Las Vegas-based Findlay Automotive, which operates G.M., Toyota, Honda and other dealerships in four Western states, said used cars had accounted for about half of sales in recent months, up from a more typical 40 percent.

“If they can buy a used car instead and save $10,000, they’ll do that,” he said.

But more have just stayed away from dealerships altogether.

“I really believe they’ll get back in the market once they start to read more good news than bad,” Mr. Corder said. “People just want to see that maybe we’re starting to pull out of the economic slump a little bit.”

Many consumers are postponing or canceling plans to buy a new vehicle, according to a study by the company CNW Research.

More than 60 percent of individuals surveyed in January about their intentions to buy a new car had dropped out of the market by February, according to CNW.

“The primary reason across the board: uncertainty about Washington, D.C.’s plans for the economy,” said Art Spinella of CNW.

Original Story - New York Times

Auto Sales Plunge as Buyers Snub Incentives

Falling U.S. auto sales crashed in February, dimming hopes that the domestic industry might bounce back in the second half of this year.

Big rebates and low-interest financing failed to lure people back into car dealerships and showrooms during another month of layoffs, stock market declines and weakening home values. Automakers sold 688,909 new cars and trucks in February, a 41.4 percent decline from February 2008, according to preliminary data released yesterday by research firm Autodata.

General Motors reported that its sales slid 53 percent in February compared with the same month a year ago. Chrysler's dropped 44 percent. And Ford's sales tumbled 48 percent, despite its insistence that it needs no federal aid to stay afloat.

"We continue to operate in a very challenging economic and competitive environment," said Ken Czubay, Ford vice president for sales and marketing, in a conference call yesterday.

The steep drop puts additional pressure on GM and Chrysler, which are rapidly burning through cash while generating very little income from sales. After receiving $17.4 billion from the government in December, both companies say they will still be on the verge of bankruptcy unless they receive another cash infusion from the Treasury Department on March 31.

Yesterday, Michigan Gov. Jennifer M. Granholm (D) met with the Obama administration's auto task force to discuss the Detroit automakers' future. Advisers to GM's bondholder committee and the National Automobile Dealers Association plan to meet with members over the next couple days. The group also summoned Fiat chief executive Sergio Marchionne to Washington later this week to discuss the Italian automaker's potential alliance with Chrysler.

GM, meanwhile, is requesting financial support from the governments of Canada, Germany, Britain, Sweden and Thailand. Yet the Swedish government hasn't granted the request, forcing Saab to reorganize under court protection. And Germany is still evaluating GM's Opel unit.

At their present pace, sales this year would hit their lowest annual level since 1981, according to Autodata.

Some analysts had predicted that elements of the stimulus package would boost sales in the second half of this year. Congress included a measure allowing car buyers to deduct a purchase's sales tax from their income taxes. But other initiatives aimed at reviving auto sales were killed -- namely a "cash-for-clunkers" proposal that would have encouraged drivers to trade in vehicles for more fuel-efficient cars and trucks.

Mike DiGiovanni, GM's executive director of global market and industry analysis, said the sales-tax deduction should boost industry sales by 100,000 vehicles this year. But he also acknowledged "Americans are hunkering down, pulling in their horns trying to save, trying to protect themselves for uncertainties."

As the economic decline deepens, many consumers are just too reluctant to make such a big purchase right now, said Jim Hossack, an analyst with AutoPacific, an industry consulting firm.

"For most people in the new-vehicle market, it's really easy to defer the purchase -- defer a month, defer a year, defer five years," Hossack said.

Yet it hasn't stopped automakers from promoting deals. This month, Chrysler will put powerful Hemi engines -- a $1,200 value -- into new Dodge Rams at no charge.

A Hyundai Kia Automotive Group program allowing people to return cars free if they lose their jobs and can't make payments helped the South Korean company buck the trend of double-digit declines. In February, Hyundai posted a 1.5 percent decline and Kia reported a 0.4 percent gain.

For now, Ford has decided to focus on building the reputation of its brand rather than relying on big incentives to sell cars and trucks, Czubay said.

"We are zigging while some of our competitors are zagging in the incentive world," he said.

Original Story - Washington Post