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Automakers Expected to Post Big Sales Drop for May

Reuters
Friday, 30 May 2008 | 4:42 PM ET

Major automakers are expected to post steep declines in U.S. sales for May, as the spike in gasoline prices battered an industry already reeling from weak consumer confidence and tighter credit.

Woman looks at new Toyota Camry on dealer lot
AP
Woman looks at new Toyota Camry on dealer lot

Weak U.S. sales in May would add to growing concerns that the world's largest market for vehicles is headed for a deeper downturn this year, with only limited gains to come in 2009.

Ford warned last week that it no longer expected to turn a profit in 2009 as runaway fuel prices undercut sales of its most profitable pickups and SUVs.

The announcement marked the first major setback for Ford's turnaround plan under Chief Executive Alan Mulally and came as sales of trucks contracted sharply as a share of an already-slumping market.

"The market's going to be weak this year and we don't see much improvement next year. The economy is going to remain weak and oil prices will continue to rise," said George Magliano, an analyst at Global Insight. "With oil prices at this level, we're looking at even lower sales for the next few months."

Analysts expect May auto sales to drop more than 10 percent in May from a year earlier after adjusting for one more selling day compared with a year earlier.

Forecasts for the annualized sales rate in May range from 14.2 million to 14.9 million units. That compares to about 14.4 million in April, which marked the worst result for the industry since August 1998.

U.S. light vehicle sales dropped 9 percent to 4.82 million units in the first four months of 2008, led by an 18 percent drop in truck sales and a 26 percent plunge in SUV sales.

Rising gas prices and a corresponding shift toward more fuel-efficient cars and crossovers have hit Detroit-based automakers, with their truck-heavy lineups, particularly hard.

General Motors, the No. 1 U.S. automaker, is still holding out hopes for a second-half recovery, although executives have acknowledged any recovery would be less robust than they had expected earlier this year.

Citigroup lowered its outlook for U.S. industry-wide sales this week for both this year and next, forecasting 2008 vehicle sales of 14.95 million units and 2009 sales of 15.4 million.

U.S. light vehicle sales for 2007 were near 16.15 million units, and many industry analysts had expected sales to decline only slightly this year just a few months earlier.

"In terms of recovery, it's not this year," said IRN analyst Erich Merkle, who forecast U.S. vehicle sales of 15 million units this year and 15.5 million for next.

Auto sales represent one of the first monthly snapshots of U.S. consumer demand and investors have looked to the reports for evidence of whether the world's largest economy has slipped further toward recession since the start of the year.

Detroit's Big Three Lose Out to Japanese Rivals

GM is expected to post a 22 percent to 25 percent drop in May sales, with Ford sales seen down as much as 22 percent. Sales at Chrysler are also expected to be down by more than a fifth, according to analyst forecasts.

Japanese rivals, with more established small car offerings, are expected to have picked up most of the market share lost by Detroit's Big Three.

Sales at Toyota, now No. 2 in U.S. auto sales, are seen down 7 percent. But Honda is expected to report a 3 percent gain while sales at Nissan are seen flat from a year ago. The forecasts are on an adjusted basis.

GM and Ford have responded to a weak market by cutting production plans for the rest of the year, but their truck inventories are still high at nearly four months of supply, according to JPMorgan analyst Himanshu Patel.

In the first four months of the year, sales of small cars rose 6 percent from a year earlier despite a falling overall market, according to Autodata.

"As a result of high gas prices, compact car and hybrid market share are predicted to reach an all-time high this month," said Jesse Toprak, analyst at industry-tracking firm Edmunds.com.

U.S. light, sweet Crude oil vaulted above $130 a barrel this week and the average price U.S. drivers paid for gasoline soared to more than $4 a gallon.

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