Funereal November Sales Provide More Ammo for Bailout Plea
December 02, 2008
By Dale Buss
In case members of Congress needed any more reminding why the domestic automakers are hat-in-hand before them this week, the 37 percent drop in November sales has provided them with the latest bleak snapshot of a moribund U.S. vehicle market.
As the Detroit Three were presenting their restructuring plans in Washington, D.C., on Tuesday, the sales data rolling in from them and all other OEMs gave further dimension to the vast pall that has come over the nation's automotive market and quantified the paralyzing dread that is felt by American consumers.
November sales were about 747,000 units compared with 1.2 million in November 2007, the lowest total sales for any month in at least 18 years. Every major manufacturer stumbled badly. For the year, U.S. auto sales were down more than 16 percent for the first 11 months, to 12.4 million from 14.8 million through November of last year.
The November sales rate dipped to a seasonally adjusted rate of around 10.5 million units from nearly 11 million units for October. That comprised the slowest pace of sales in more than 25 years. It also marked the lowest number of sales on a per capita basis in the U.S. market in at least a half-century, General Motors said. And the dreadful November performance all but sealed a full-year sales total that will rank around a pallid 13.6 million units.
The most charitable description of the month was that it represented only a 2 percent decline from October's sales of 834,000 units if measured on a daily-rate basis; there were only 25 selling days in November but 27 in October.
"The typical decline each year from October to November is 4 percent, so we can argue that this year's change was better than for the last several years," noted Jesse Toprak, executive director of industry analysis for Edmunds.com. "At least that's if one wants to see the glass as half-full."
Words Can't Describe
But even the usual optimists among Detroit Three executives kept their rose-colored glasses in their pocket to behold November. Just as a month ago when they reported sales for October -- the beginning of this fall's dramatic sales dropoff -- OEM executives were nearly at a loss for words in describing just how bad things were in November.
"I've been in the industry nearly 28 years and never have seen anything even remotely close to this," said Mark LaNeve, GM's North American vice president of sales. "It's breathtaking."
Jim Farley, executive vice president of marketing communications for Ford, agreed that "the market is incredibly challenging."
And Mark Barnes, chief operating officer of Volkswagen of America, said that "this is the toughest economic environment we've seen in a long time and it presents a significant challenge."
The Detroit Three executives blamed much of November's difficulties on the weeks-long discussion in Washington about their financial health and long-term viability -- and of whether they deserved government help at all.
GM clearly was hit the worst. LaNeve maintained that more than 30 percent of Americans who were considering automotive purchases in November avoided GM showrooms specifically because of concerns about the company's short- and long-term survivability. And Ford's Farley said that "talk of bailouts, bankruptcy and the general uncertainty of the consumer is impacting not just Ford sales but industry sales."
Faltering Fundamentals
But the intense national conversation over the future of the Detroit Three only added to a general hesitance that first shook the vehicle market in October, in the immediate aftermath of the federal-government bailout of the credit markets and financial industry -- and amid the first whispers of the really hard times that were besetting the entire economy.
"The primary causes" of the epochal slump in the auto business, said Michael DiGiovanni, GM's executive director of global market analysis, "are the global economic crisis and credit freeze. The lifeblood of our market is consumer confidence, credit and liquidity."
Toprak agreed. "The majority of the decline is due to low consumer confidence, regardless of the deal that people can get or how low gas prices go. The majority of Americans who buy new cars -- most of them experienced a 30-percent-plus decline in their 401(k) over the last year and their house lost 20-percent-plus of its value. They don't know if they're going to have a job in the next few months.
"It's a bit depressing, if you put it all together," Toprak said. And in those circumstances...consumers don't want to make a big-ticket purchase.... They're simply waiting for the dust to settle."
Also because of the consumer's state of mind, higher overall levels of incentive spending by OEMs have done little to move the needle. "A lot of manufacturers have realized that incentive spending above a certain level is wasted money," Toprak said.
So, November's Total Cost of Incentives for the average vehicle -- a proprietary measure compiled by Santa Monica, California-based Edmunds.com -- fell slightly to $2,625 from $2,677 in October. Interestingly, while each of the Detroit Three dropped its incentive spending significantly during the month, each of the Japanese boosted theirs -- to very little avail.
Still Searching for the Bottom
The GM executives underscored the fact that the auto industry is the hardest-hit sector of the U.S. economy. "There was a lot of talk about retail sales last weekend increasing 3 to 7 percent overall" in U.S. stores beginning Black Friday, DiGiovanni said.
"And as bad as the housing market is, existing-home sales have stabilized over the last six months. Our industry is in a much more severe situation than the rest of the economy, and it's unsustainable -- for all manufacturers. The entire industry will go down. Hence the need for a federal stimulus."
By the same token, DiGiovanni said that the dramatic decline in gasoline prices over the last few months has provided a rare but significant bright spot for the consumer, on average "resulting in a $200 boost in pure cash to households compared with July."
Setting the fate of the Big Three specifically aside, DiGiovanni continued, for the auto market to recover, "We definitely need the credit markets to thaw further." Second, he said, "We need stability in the housing market." And third, "The credit markets [will] have to hope that all the federal actions will gradually thaw them so that liquidity opens up."
Edmunds.com's Toprak purported that the current depressed sales levels fall far short of what he called the "natural level of demand." He described that level as where economic growth, inflation, gasoline prices and other economic dynamics are all moderate, which should translate into an annual sales rate of about 14.5 million to 15 million units. Therefore, today's environment is producing lots of "pent-up" demand, he said.
Assuming the U.S. and global economies begin to stabilize, the 2009 auto market, with sales below 13 million units, will prove even worse overall than 2008, Toprak projected. In 2010, sales should recover to about 14.5 million units, at or near the "natural" demand level for the U.S. market.
Trucks to the Rescue
Ironically, pickup-truck sales provided one of the very few bright spots in the November sales 
report. As a result of a combination of the launches of new Ford F-150 and Dodge Ram lines this fall, record-high incentives, and swiftly falling gas prices, trucks as a segment recovered to about 22 percent of the market in November from just 17 percent in July.
"The one thing we've learned in the last six months is that consumers move at lightning speed to whatever they think is the smartest buy," Ford's Farley said.
GM's LaNeve said that "the consumer has largely gotten back into the truck and SUV market, but that's largely disguised by the abysmally low [overall] levels of the industry."
GENERAL MOTORS: Not Enjoying the Hot Seat
General Motors' November sales plunged by 41 percent compared with a year earlier, to fewer than 155,000 units. For the year to date, GM's sales were down by about 22 percent versus 2007.
"Every manufacturer is posting awful numbers, and we are no exception," LaNeve said.
In fact, he and DiGiovanni took pains to describe GM as no different than the rest of the industry in its problems. They argued that the company has been unfairly targeted by Congress and the media as the exemplar of all that is wrong with the domestic auto industry. And therefore, naturally, more American consumers are going out of their way to shun GM products and dealerships than their competitors'.
"It's unfair to highlight us," DiGiovanni said. "All six [major] OEMs are joined at the hip in this.... We're all in the same boat."
GM's boat just seems more waterlogged. LaNeve conceded that the company still has too many dealers. Its directors seem to have concluded that the company still has too many brands even after putting Hummer on the block last summer. Because its captive finance arm, GMAC, is shaky, lease penetration in GM deals last month was a paltry 1 or 2 percent -- greatly diminishing leasing deals as a tool available to dealers.
And now, LaNeve said, GM is contemplating further production cuts during the first quarter even after it already has slashed output so far this year. The 400,000 fewer vehicles sold by the industry in November compared with a year ago, LaNeve said, are equivalent to "the annual volume of two full production plants that have simply evaporated in a single month."
Cash-strapped GM, along with Ford and Chrysler, refrained from pouring higher incentive spending into an unresponsive market. "We're trying not to throw good money after bad chasing business that just isn't there," LaNeve said.
Meanwhile, GM continues to look at ways to whack other expenses, including marketing. It already announced the end of Buick's marketing deal with Tiger Woods, and LaNeve said that "we're spending the money only where we absolutely have to, to drive volume and cash flow. It's damn near zero-basing of our [marketing] budget, which is a monumental task for a company our size."
FORD: An Unlikely Hit?
Ford Motor reported November sales of just 118,000 vehicles compared with more than 168,000 a year ago. But its 30 percent decline was least among all major OEMs. And for the year, Ford's 19 percent shortfall in sales to date is better than those of its domestic rivals.
So while Ford was first to present its survival plan to Congress on Tuesday morning, and remains in the best financial shape of the Detroit Three, its executives also could concentrate on a relative bit of success in the marketplace itself.
Key to Ford's performance in November was the initial success of its new F-150 pickup-truck line. The company said it actually is short of trucks because of a fabulous sell-down of 2008 models of the F-Series and strong consumer appetite for the improved 2009 model. Such demand looked unlikely just a few months ago when gasoline prices spiked and shook up the segment.
Now, it appears as if Ford might have made a bad decision when it delayed the F-150 launch a couple of months. In some regions, Farley said, dealers are tracking trucks across state lines because they are running out.
"We're adding production but not aggressively," Farley said. From this year's fourth quarter to the first quarter of next year, Ford has decided to make 50,000 fewer cars and 50,000 more F-Series trucks.
Overall, too, Ford dealers have a weapon that isn't as handy to some rivals, in the form of ample funds provided by the company's captive finance arm. Fully half of Ford buyers are financing through Ford Motor Credit, providing stability to dealers that has been "the difference maker for us for the last 60 days," Farley said.
Along with its domestic counterparts, Ford has been refraining from throwing extra incentive money at such a poor market. The company said that many consumers expect zero-to-negative inflation next year, so only huge incentives would make a difference in their purchase preferences.
CHRYSLER: Going Month to Month
Chrysler sold just 85,000 vehicles in November, down a whopping 47 percent -- worst among the Big Six OEMs -- compared with November of 2007. And for the year to date, Chrysler's 28 percent decline also is the worst.
Amid all the attention to GM's plight, the fact remains that Chrysler probably is the most financially desperate of the Detroit automakers. It's just that as a private company, not as much can be easily learned about how poorly it is doing.
But Chrysler's marketplace performance clearly has been pulling up the rear of the industry, all year. Its woes began last spring when the company's over-reliance on pickup trucks and SUVs -- and paucity of competitive car models -- put Chrysler in a deep hole as gasoline prices surged. And the last couple of months have been no kinder to the company even though gasoline prices have fallen by about half.
One way Chrysler has attempted to parry the bad news is by declaring its monthly sales results meaningless, at least in the context of the times. This year "will go down as unlike any other year in the industry, and thus, comparisons to 2007 sales have become irrelevant," said Jim Press, Chrysler's vice chairman and president.
"Our goal is to fight to maintain our share of the retail market month to month by keeping a 
strong advertising and incentive presence in the marketplace and finding financing solutions for our customers."
One product-related rallying point for Chrysler is the 2009 Dodge Ram pickup line, which is still moving into dealerships for the first time behind an aggressive national advertising program and heavy incentives. Consumers can get up to $3,000 in incentives even on the new Ram and up to $8,500 on the 2008 models that Chrysler is trying to clear out.
TOYOTA: Takes Biggest Hit Yet
Toyota Motor Sales U.S.A. posted November sales that were 34 percent below year-ago levels, down to 130,000 vehicles from more than 197,000 vehicles a year earlier -- extending the company's unprecedented rough patch in the American market.
For the year, Toyota reported sales of just more than 2 million vehicles, down nearly 14 percent from the 2007 total through November.
Toyota's continued swoon proves that the huge loss of purchasing confidence by U.S. consumers applies across all automotive brands and vehicle types, because Toyota has become the de facto gold standard in the American market.
The company's performance also was "the biggest surprise this month," Toprak said, because it pumped record levels of incentive spending into the market in the form of wide-ranging zero-APR loans and then touted the deals in ubiquitous "Saved By Zero" TV ads.
"They didn't seem to bring in showroom traffic," Toprak said. Its executives seemed to forget that "Toyota customers typically don't respond to incentives well. They're not there for the incentives; they're there for the cars. The inherent weakness in the market meant that there wasn't enough showroom traffic."
In fact, Toyota division sales were lowest for any month since January 2005, according to Edmunds.com analysis. For example, even sales of Toyota's smallest car, Yaris, declined by nearly 17 percent from a year earlier despite its recent popularity as a highly fuel-efficient model. At the same time, sales of the Highlander SUV cratered, falling nearly 36 percent.
Even sales of Toyota Prius -- not too many months ago, the hottest vehicle in the land -- have drooped badly with the overall decline of the U.S. market and, probably more important, the settling back of gasoline prices below $2 a gallon compared with a spike above $4 a gallon in July. Prius sales were down 48 percent from last November, were down nearly 10 percent for the year to date, and in November marked their lowest monthly total since January 2007, according to Edmunds.com.
Sales of the new version of the Toyota Corolla compact held up best of any large-volume Toyota model during the month, with nearly 22,000 units sold, just 13 percent below year-earlier sales of the previous version of Toyota's staple model.
Lexus, however, took a huge hit just as other luxury brands have been sustaining. Its sales were down nearly 35 percent for November and, for the year, declined nearly 20 percent.
NISSAN: Ineffective Incentives
Nissan North America posted November sales of nearly 47,000 vehicles, down more than 42 percent from sales of nearly 81,000 units a year ago. For the year to date, Nissan's sales were down by more than 9 percent.
Nissan's struggles surprised some observers because, a few weeks ago, the company had 
moved aggressively to try to maintain sales and market share against the overall drag on the industry. It introduced a stripped-down version of its Versa subcompact for less than $10,000 and launched a significant new -- and uncharacteristic -- program of broad and generous incentives.
In fact, Nissan's incentive spending averaged $2,347 a vehicle in November, in Edmunds.com's Total Cost of Incentives measure, compared with $2,154 a year ago. "So their results shocked me," Edmunds.com's Toprak said.
Like other luxury marques, Nissan's Infiniti brand suffered a substantial drop in November sales, by 28 percent compared with a year ago.
HONDA: The Limits of Fuel-Efficiency
American Honda Motor Co. began to look more and more like its competitors in the U.S. auto industry in November, posting a 32 percent decline in sales for the month, to more than 76,000 vehicles from more than 111,000 vehicles a year earlier.
Over the last couple of months, Honda's performance in the U.S. market has come back to the industry trend more and more because the big advantage it long has held -- a fuel-efficient fleet of unparalleled breadth -- has lost its edge with the recent ebb in gasoline prices. Now, Honda is afflicted by the rotten mood of American consumers and the other economic fundamentals just like its rivals.
For the year, however, Honda, through November, has managed to hold its decline to just under 6 percent, a feat that sets it apart from the rest of the Big Six OEMs.
Honda's only winning model for the month was the source of some encouragement for the company. Its Pilot SUV, a full-size vehicle introduced this year in a slightly redesigned version, increased sales for November to more than 5,600 compared with sales of fewer than 5,400 units for the old version of Pilot a year ago.
And Honda's smallest car, Fit, managed to hold its decline to just 8 percent for November compared with a year earlier.
But every other Honda model saw a significant decline in sales, of at least 9 percent.
Echoing woes of other luxury makes, the Acura division posted an even worse sales decline than for Honda as a whole: November sales dropped by nearly 39 percent compared with a year earlier.
MAZDA: Crossover Cred
Mazda joined the rest of the industry with terrible November results, selling more than 14,000 vehicles, a drop of 31 percent from nearly 21,000 sales a year earlier. For the year to date, Mazda sales were off only 9 percent.
The company touted sales of its Mazda5 "multi-activity vehicle," which sold nearly 1,500 units in November, more than three times the number a year earlier. For the year, Mazda5 sales were up 37 percent.
And the all-new 2009 Mazda6, which began arriving at dealerships in September, is experiencing what Mazda called "a strong start."
"Every sale continues to be a struggle," said Jim O'Sullivan, president and CEO of Mazda North American Operations. "But we feel we'll be well-positioned for when the economy turns."
MITSUBISHI: Some Strong Models
Mitsubishi Motors said that its November sales were nearly 5,100 units, down more than 36 percent from year-earlier levels. For the year to date, Mitsubishi sold 25 percent fewer vehicles.
But Mitsubishi noted that sales of its Galant model were up 1 percent for the year to date. Outlander sales in November rose more than 3 percent compared with October, and November was the best month for sales of the SUV model in six months. Lancer Evolution sales rose nearly 600 percent in November compared with a year ago and were up more than 43 percent for the year.
SUZUKI: Middle of the Pack
American Suzuki posted November sales of more than 3,200 vehicles, down more than 46 percent from year-ago sales of nearly 6,000 units. For the year, Suzuki sales were down more than 14 percent, placing them about in the middle of the pack for 11-month performance by Asian makers in the U.S. market.
Sales of its SX4 crossover were down only 23 percent, and Suzuki's XL7 SUV managed just a 17-percent decline for the month. But Suzuki's Grand Vitara SUV suffered a 57 percent drop.
HYUNDAI: Thrown for a Loop
Hyundai got hit by an out-of-character monthly decline in sales in November, down by more than 40 percent, to more than 19,000 units compared with sales of nearly 32,000 vehicles a year earlier.
For the year, Hyundai's sales pace to date fell more than 10 percent off 2007 levels, putting it in the middle of the mix with other Asian brands.
"We are still experiencing challenging times," said Dave Zuchowski, Hyundai Motor America's vice president of national sales. "But [we] believe that Hyundai remains exceptionally well positioned."
The company's near-luxury Genesis sedan began nearing full sales volumes, moving 1,151 units nationwide in November, for a year-to-date total of more than 5,100 units.
KIA: None Are Immune
Kia Motors America said that its November sales were more than 15,000 units, a 37 percent decline from year-earlier sales of more than 24,000 units. For the year, the Korean brand posted just an 8 percent decline compared with the first 11 months of 2007.
November sales were led by Spectra and Sorento, with Sorento posting a 47 percent increase for the month.
AUDI: Hanging in There
Audi announced that November sales totaled nearly 6,800 vehicles, down more than 25 percent from 9,100 sales in November 2007. For the year, however, Audi's sales were only 6 percent off last year's pace.
Audi cited "the strength of several new products" for its relatively better November performance than BMW and Mercedes-Benz. They included the A5 and R8 as well as a new TT.
BMW: Lack of Emotion
BMW Group in the U.S. sold nearly 20,000 vehicles in November, down nearly 27 percent compared with year-earlier sales. For the year to date, BMW Group volumes were down nearly 7 percent.
As a leading luxury brand, BMW finally has been suffering the full brunt of the disappearance of the well-to-do buyer from the U.S. market. "You can't force sales because in the current climate purchases are based on real need, and when there is emotional desire involved, the decision is increasingly weighted on the value proposition," said Jim O'Donnell, president of BMW of North America.
But O'Donnell said that BMW had been outperforming the rest of the luxury market because its "value proposition is well tuned." And production cuts have kept BMW ahead of inventory problems.
A marked bright spot is sales of Mini vehicles, which increased in November to more than 4,500 units, up 43 percent from a year earlier. The brand hit the milestone of 50,000 sales in November, "one month sooner than we expected," O'Donnell said.
MERCEDES-BENZ: The Luxury Malaise
Daimler AG said that sales for Mercedes-Benz vehicles in the U.S.market declined by more than 38 percent in November, to more than 14,100 vehicles from nearly 23,000 vehicles a year earlier. For the year, Mercedes-Benz sales declined only by less than 9 percent.
Nevertheless, the recent woes of the iconic luxury automobile brand put it in the company of every other OEM in the American market.
Sales highlights included a 17 percent increase in sales of C-Class vehicles and a 6 percent increase in M-Class SUV sales, both for the year to date.
The company's Smart brand continued to be strong, with Smart Fortwo sales totaling nearly 1,900 units for November -- and more than 22,200 units for the year to date.
PORSCHE: The Sad Face of Luxury
Porsche Cars North America confirmed that luxury consumers were in no position to run counter to the sour mood of mainstream consumers in November, as its sales dropped by nearly half for the month -- to fewer than 1,400 units compared with nearly 2,700 units in the record-setting performance of November 2007.
For the year, Porsche's sales declined 25 percent compared with the first 11 months of 2007, to fewer than 24,000 vehicles.
"The dramatic downturn in the car market, including luxury brands, shows no sign of recovery," the company said.
VOLKSWAGEN: Clean Diesel a Bright Spot
Volkswagen of America reported a 19 percent drop in sales for November, with nearly 18,000 vehicles sold in the month.
On a year-to-date basis, however, VW is one of the few significant automakers operating in the U.S. market that can report even being close to last year's results. VW's sales for the year through November are just 2 percent off last year's pace.
VW's staple models performed poorly. New Beetle sales were off nearly 44 percent for the month, for example, and Jetta sedan sales were off about 32 percent.
However, as European OEMs begin importing more models with clean-diesel technology, VW was cheered to report that 17 percent of the units it sold in November were outfitted with its clean-diesel TDI powertrain. "This is very promising for the VW brand," Barnes said.
Also, VW managed to sell more than 1,000 units each of its new Tiguan crossover and Routan minivan, the latter of which has been the subject of a huge national advertising campaign featuring Brooke Shields.
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