KEY POINTS:
General Motors and Ford, suffering from a litany of ills and struggling to reverse their slide, started the new year with a stumble.
The evidence comes in the form of January's sales report, portending a 2007 that could be the worst in a decade for the domestic industry. Both companies had vehicle sales declines of more than 10 percent.
And even though both are introducing a slew of new models, cutting costs and eliminating tens of thousands of jobs there are few signs that a turnaround is at hand.
The US carmakers, including DaimlerChrysler AG's Chrysler Group, are poised to drop below 50 per cent of the US market in terms of sales, a stunning and once-unthinkable psychological threshold. With less than half of its home market, the US industry's prestige and credibility would be at an all-time low.
GM and Ford have been selling assets and borrowing heavily in the face of stunning losses in their US operations.
DaimlerChrysler managed a 3.2 per cent sales gain in the US in January, partly due to strong results by Mercedes-Benz, which is gaining popularity with American luxury-car buyers. However the gain was little comfort to the carmaker, which is set to announce its latest restructuring of US operations this month, possibly at the cost of as many as 10,000 jobs.
GM and Ford blamed the bad monthly numbers mostly on the decision to cut back low-profit and no-profit sales of cars to daily rental fleets.
GM, Ford and Chrysler, to a far greater extent than Japanese rivals, have used rental fleets as a safety valve against weak demand for their models. When rental vehicles are later sold as used cars, however, they tend to depress values generally.
Retail customers unhappy with the low residual values of their GM, Ford and Chrysler models are a big reason for the rise of Toyota and Honda. Japanese carmakers rely far less on fleet sales, thereby protecting the residual values of their models more effectively.
In addition to the dip caused by fewer fleet sales, GM and Ford's retail sales also fell in January. Sales of Ford's all-important full-size F-Series pickup trucks dropped by about 8000 units, or almost 15 per cent, for the month.
GM, benefitting from the debut of new Chevrolet Silverado/GMC Sierra pickup models, managed to post a narrow gain in full-size pickup sales compared with a year ago.
But sales of Chevrolet's new Tahoe large sport-utility vehicle fell 36 per cent from a year ago.
An important moneymaker for GM, the new Tahoe, arrived at showrooms only a year ago so it's possible the decline stemmed partly from a difficult comparison with last year, when older models were discounted for clearance. But it's troubling that GM might not be getting the pop in sales expected from new-model introductions.
Sales of GM's new Cadillac Escalade luxury sport-utility vehicle did increase 55 per cent year-over-year, while sales of some competing large SUVs such as the Nissan Armada and Toyota Sequoia fell.
Toyota didn't miss a beat in its march toward the top. The No 1 Japanese producer reported a 9.5 per cent sales increase, which pushed its share of the US market to 16.1 percent from 14.1 percent last year. For the month the company was No 2 in the US, behind GM.
Adjusted for seasonal variations, January's sales total translated to a 16.7 million vehicle rate for the year. Last year the industry sold a shade less than 16.5 million vehicles.
But the total didn't account for large inventories of unsold vehicles remaining at month's end, causing GM and Ford to trim production plans in the first quarter. Larry Dominique, Nissan's top product planner in North America, said his company is forecasting industry sales of 16 million in 2007.
The industry hasn't had a total that low since 1998, when sales were slightly less than 15.6 million.
GM, Ford and Chrysler all could use a resurgence in consumer confidence, and perhaps a surprise burst of vehicle purchasing - the sooner the better.
- BLOOMBERG
