Fleet Cutbacks Help Shrink January Sales to Early-1980s Levels

Fleet Cutbacks Help Shrink January Sales to Early-1980s Levels

By Dale Buss and Bill Visnic

Two huge drags on the U.S. auto market - an utter lack of consumer confidence, and a paucity of credit -- persisted in January and were joined by a new one: at least a temporary evaporation of the fleet market.

Industry-wide sales in January cratered from a year earlier, falling by 36.9 percent, to about 677,000 units from 1.06 million vehicles sold in January 2008. The seasonally adjusted annual sales rate fell to fewer than 10 million units for the first time in more than 26 years. And the American auto business sold fewer cars than for any month since the depths of a recession in December 1981.

Lack of "credit is choking us to death, and more than any other industry, ours is based on credit," said Michael DiGiovanni, General Motors' director of global sales analysis.

Jesse Toprak, executive director of industry analysis for Edmunds.com, said the industry "must get people out there shopping for cars, and the only way to do that is to give them confidence in the economy."

The big additional problem in January was that companies joined individual consumers in wholeheartedly refraining from purchasing vehicles.

While retail-sales rates held close with the weak pace of November and December, the industry's overall level of fleet sales - to car-rental companies and commercial and government operations - fell by more than 60 percent compared with a year earlier.
Fleet sales by GM and Chrysler fell by about 80 percent compared with January 2008; Ford's were down by about 65 percent.

Each of the Big Three has been strategically trimming fleet sales for the past few years to boost residual values of their vehicles and to focus on higher-margin retail sales. But each cited two additional factors for the January swoon that throttled fleet sales almost to a halt: first, daily-rental companies have drastically slashed their orders because of their own financial challenges. Second, because the Detroit Three each cut production to the bone in January, they didn't get the benefit of how fleet orders materialize on their books much more quickly than do retail sales out of stocks that dealers order.

"We're focusing more on our retail customers - not on volume for vanity but on retail for sanity, for margins," explained Jim Press, vice chairman of Chrysler, whose retail sales were down about 35 percent.

"The biggest reason for the decline in the (industry's January) sales rate was in the fleet market," added George Pipas, Ford's chief sales analyst.

The China Syndrome

Running out of superlatives to describe the worst environment in decades, the U.S. industry nevertheless managed to create a historical new comparative: China's auto sales in January, at about a 10.7-million seasonally adjusted annual rate, surpassed total vehicle sales in the American market for the first time in any month, according to GM.

And every mainstream manufacturer was affected. High-volume Japanese makers have pretty much joined the Detroit three at the new, depressed level of sales.

"Two models posted gains, but we are still facing unprecedented times in the industry, and no auto company is immune from current market conditions," said Dick Colliver, executive vice president of sales for American Honda, whose sales declined 27.9 percent compared with a year earlier.

And while Toyota's sales downshifted 35 percent in January compared with a year ago, it also began facing two huge problems familiar to its domestically based rivals, but surreally new to the global volume leader, at least in the U.S. market.

First, inventories of unsold Toyota-branded vehicles are swelling on its dealers' lots, having touched a 77-day supply in January. Typically, the company likes to operate in the 40-day range. For the industry as a whole, 60 days long has been a comfortable norm.

And Toyota also is battling rumors that it plans U.S. layoffs.

"Protecting the jobs of our associates is our absolute top priority, and we're doing everything we can to avoid any kinds of reductions to our workforce," said Bob Carter, a corporate vice president and general manager of the Toyota division. "The reports are purely speculation."

Hyundai's Great Move

Bright spots were exceedingly hard to find in the January report, but there was one clear highlight that gleamed through all the doom: Hyundai Motor America's performance. The Korea-based automaker has hit a groove at the unlikeliest of times, posting a 14-percent increase in January sales compared with a year earlier.

The company and analysts alike attributed the spurt largely to the debut of its Hyundai Assurance plan, which allows most buyers to get out of a purchase of a new Hyundai vehicle, without a negative effect on their credit, if they lose their job or income during the first year of ownership.

Hyundai Assurance "has struck a chord with the American consumer during these uncertain times," said David Zuchowski, Hyundai Motor America's vice president of national sales.

Toprak, of Santa Monica, Calif.-based Edmunds.com, called the program a "smart" gambit that "dealt with the core of the issue. People are uncertain about their jobs, and if you give them some security blanket, it makes them feel better about the future."

Searching for a Bottom

At the same time, executives of the largest automakers searched for their own silver linings, mostly hoping to determine that the market - stable even at this depressed level - may have bottomed out.

As hopeful signs, they pointed to a slight firming in prices in used-car auctions and to the fact that GM and Chrysler have been able to rejoin the others of the Big Six in using their captive-finance arms to make vehicle loans, after the federal government gave each finance operation an injection of capital in recent weeks.

"We're also seeing an improvement in automotive purchase intentions," said Carter, citing a recent Conference Board report. "And at least we're seeing shoppers increasing significantly their activity on the internet, although they're not necessarily coming into showrooms."

Toprak agreed, noting that Edmunds.com showed a 13-percent increase in purchase intentions by its visitors in January compared with December.

And GM's DiGiovanni pointed to stronger purchases of existing homes in December and to the likelihood that President Obama's economic-stimulus package, whatever its final form, will generate significant new activity over the coming months.

But Chrysler's Press wasn't lunging for short-term optimism as his company joins GM in trying to work its way through the federal-bailout process. "The market outlook will continue the way that 2008 ended," he said. "There aren't a lot of indicators out there that would change that.

"We need to recalibrate from the standpoint of where the market is and quit dreaming about pent-up demand," Press concluded. "The realistic view of the economy, employment and the credit situation ahead is that there's not a lot of reason to believe the industry will have a lot of growth this year."

General Motors: Shreds of Optimism

General Motors Corp. executives didn't try to sugarcoat the company's abysmal performance in January: GM delivered just 129,000 vehicles, down 48.5 percent from January 2008.

But in view of their capitulation on the fleet-sales front, they did note GM's retail sales were off 38 percent while the company's retail market share held steady with December and, basically, with its 21-percent level most of the last three years.

"Our retail share is holding up well given how weak the industry is," DiGiovanni said. He might have added that GM also is bucking public anxiety over the ongoing federal-loan process, questions about the ultimate disposition of several GM brands, and the fact that General Motors Acceptance Corp. could manage to finance only about 5 percent of the purchases made at GM dealers despite an injection of federal funds that enabled the captive-finance arm to extend loans to a broader swath of buyers.

GM is hoping the percentage of GMAC-enabled deals expands to 15 percent or even 20 percent over the next few weeks. "That will make a big difference," said Mark LaNeve, GM's North American vice president of sales.

LaNeve said GM will further leverage the loosening of funds through GMAC to mount a Presidents' Day sale this month offering zero-percent financing for as long as 60 months and 1.9-percent loans for as long as 72 months.

The company also expects the fleet business to pick up to more normal levels in coming months.

In the meantime, GM underscored the fact that its incentives were at the lowest level of any of the Detroit Three in January. According to Edmunds.com calculations, GM's incentives averaged $2,992 per vehicle -- $1,204 less than Chrysler and $582 less than Ford.

GM said retail sales of its cars and crossovers combined were about 65 percent of the sales mix in the month. "Every nameplate (in those two segments) improved their selling pace from December," LaNeve noted.

Still Aligning Production with Demand, Ford drops 39 percent

Ford Motor Co. tempered a sales month that brought an overall 39.3-percent sales drop and saw not a single Ford, Lincoln, Mercury or Volvo model post a sales increase with the rejoinder that a drastic curtailment of fleet sales is responsible for dragging on not only Ford's January numbers but the entire industry's as well.

Factoring out the fleet influence, said chief sales analyst George Pipas, Ford's retail sales dropped 27 percent - one of the industry's best January sales performances. He said the company also cut 27 percent, or some 156,000 vehicles, from its inventory compared with last January.

The drop in fleet sales staggered the industry to an annualized sales pace expected to be less than 10 million units, said Pipas, "a big step down" from December's already weak 10.6-million SAAR.

And although Pipas said Ford continues in an effort to reduce inventories - mainly through wide-ranging production cutbacks - that strain dealer floorplanning costs, this and the fact the ill effect from reduced fleet sales is expected to be temporary are faint balm for some gaudy sales drops in Dearborn, including a 38.7-percent plunge for the company's franchise F-Series pickup line, which was totally redesigned for '09.

Pipas also admitted the January sales performance might be one of Ford's all-time worst, certainly "one of the largest" he can recall. The 39-percent drop brought just 90,596 total sales, an annualized sales pace that would have Ford barely cracking the 1 million mark in sales.

Other notable results included a 54-percent drop for the Edge crossover, a 55-percent dive for the Mustang and a 48.9-percent fall for the Explorer.

At the Lincoln division, although Ford officials say the new-ish MKS flagship is gaining share and making inroads in its ultra-competitive segment, the floor continues to fall out from under the Navigator with a 60.2-percent drop versus January 2007 and 42-percent-plus dives for both the MKX crossover and the MKZ midsize sedan. In all, Lincoln sold just 6,091 vehicles for the month.

Mercury moved just 5,183 vehicles in January, paced by a 64.1-percent loss for the Mountaineer and a 31.6-percent loss for the Milan midsizer.

January also was a dismal month at Volvo, with just 2,910 units sold, a shocking 63.8-percent plunge from last January. The entry-level S40 was off by 73.7 percent and the formerly popular XC90 crossover down by 70.1 percent. The S60 dropped 83.9 percent and the backbone XC70 wagon dropped 51.3 percent - to just 470 units sold.

The single bright spot might be Ford's 0.3 percent of market-share gain, which Pipas said marks the first time since 1995 the company posted four consecutive months of share increase.

Chrysler: Hanging in There

Chrysler LLC's prospects are about as harrowing as possible as the company awaits the conclusion of the federal-loan process and contemplates a fire-sale absorption by Fiat S.p.A. To top it all off, the company posted a horrendous 55-percent collapse in January sales, to just 62,000 units.

It was quite a stretch for Jim Press on Tuesday to say that he was "happy to announce good results for January in spite of a challenging and difficult market environment."

But what he was trying to spin: Chrysler essentially gave up on fleet sales in January, partly because its factories were mostly silent, unable to spit out vehicles to satisfy the quick-turning fleet market even if there was demand.

Meanwhile, the retail-credit spigot was restored only by a trickle, meaning that Chrysler Financial facilitated only about twice as many vehicle loans as it did in an arid December. "There were lots of customers who wanted to buy cars that we couldn't get financed," Press said.

And despite all of that, Chrysler's sales declined by just 35 percent "on the showroom floor, where it really counts, with our dealers," said Steven Landry, Chrysler's executive vice president of sales and marketing.

Press and Landry noted that the continuing launch of Chrysler's new Dodge Ram pickup "has been going real well," with Ram sales volume increasing 39 percent in January over December. And he noted more good reviews for Ram, including a new Car & Driver evaluation of pickups.

The company plans a blowout incentive program this month called Employee Price Plus Plus, offering consumers the same discount as Chrysler workers, plus up to $3,500 in cash incentives on new models, plus zero-percent financing - through February.

Toyota: Down with the Struggle

The general market downturn is afflicting Toyota Motor Sales USA in new ways every week. The company reported a 31.7-percent decline in sales last month, to 117,000 vehicles. And it's battling swollen inventories and the possible need for cost-cutting measures in the U.S. market.

"No company can say we absolutely guarantee job security, but it's our top priority, and we're looking at every part of the business," said the company's Carter.

He said Toyota had identified the likelihood that "the industry is in a bottoming process." But Carter conceded, "as we progress in the first quarter, industry conditions will be much the same" as they were in January.

For now, that means the company has to cut production, which delayed by about a week its full launch of the new Venza crossover. Toyota got only mixed reviews for its Super Bowl ad for the new product. "While the market is tough, we still have a big job of creating awareness of the nameplate," Carter said.

Carter said that the company also is anticipating the introduction of its new 2010 Lexus RX 350 in the middle of this month.

Meantime, Toyota also is encouraged by a recent stirring in its virtual activity. Web-site activity on its sites increased by 2 percent over a year ago and by 10 percent compared with December. "We're hoping," Carter said, "that this is indicative of continuing pent-up demand within the industry."

  Honda Hammered To 27.9-percent Decline

American Honda Motor Co. Inc. couldn't hold up against the sliding market, although its 27.9-percent drop slightly outperformed chief rival Toyota's 34.4-percent decline.

Although the January fallback for the three major Japanese automakers wasn't as sharp as for the Detroit Three, Honda's results were not encouraging: only one Honda-badged model, the new Fit subcompact, managed to post a gain - a 1.8-percent increase to 4,745 units compared with last January's 4,480 Fit sales.

Particularly exposed for Honda is the recently redesigned Pilot fullsize crossover, which posted a 23.3-percent decline, as well as the glaring 33.5-percent dropoff for the Accord midsize sedan, which, along with the compact Civic and its 35-percent fall, are the backbone of the Honda lineup.

There were also significant declines for the Odyssey minivan (-40.6 percent), the Ridgeline pickup (-48.6 percent) and the aging Element (-52.2 percent). The typically strong CR-V compact crossover also dropped by a meaningful 21.1 percent.

Matters were even worse at Honda's upscale Acura division, which endured a 32.4-percent dropoff in January. The flagship RL was off 47.8 percent to a grim total of 208 units. And the MDX and RDX crossovers - both also relatively new - posted near 50-percent plunges, with MDX off 48.7 percent and RDX down 48.1 percent.

Acura's only bright spot was the TSX entry-level sport sedan, which managed a healthy 11.6-percent gain. The TSX and the Fit were the only two models in the entire Honda/Acura model range to record sales gains in January. The company sold 76 Honda S2000 roadsters, which the company announced earlier this month it will discontinue.

Nissan 29.7-Percent Drop Comparatively Healthy - But at a Price

Of the Big Six automakers, Nissan North America Inc. in January had the most models to post a sales increase and lowest-percentage decline in overall sales, with a 29.7-percent drop.

Nissan may have bought its comparatively good performance, however: data from Edmunds.com shows the company outspent its Japanese rivals on incentives in January, laying out an average of $2,270 per vehicle - a figure that was $921 more than Honda and $297 more than Toyota, although the number was some $722 less than GM's average vehicle incentive and also well less than Ford ($3,574) and Chrysler ($4,196) laid out.

Nissan had two models to record sales gains in January: the Rogue compact crossover rang up a 6.8-percent sales increase while most segment competitors endured double-digit losses. And with a new model just launched and heavy incentives to clear the old one, the 350Z/370Z sports car jumped out to a 47-percent increase, with 1,280 units sold.

Car-like crossovers peformed well for Nissan's Infiniti premium-vehicle division, too: the compact EX saw a 12.5-percent increase in January, while the larger Infiniti FX posted an outsized 74.9-percent gain. And Infiniti's 17.7-percent overall decline was a markedly better performance than either Toyota's or Honda's premium divisions could manage.

There were dark clouds over the Nissan sales charts, of course.

Nissan's trucks and SUVs were pummeled in January: the Titan fullsize pickup was off by 60.5 percent, exceeded only by the declines of 60.6 percent for the Frontier midsize pickup and 62.9-percent plunge for the Xterra SUV. The Pathfinder and Armada respectively were off by 47.3 percent and 57.2 percent. The Quest minivan slid by 65.5 percent to a meager total of 646 units for the month.

At Infiniti, the QX56 fullsize SUV declined 70.4 percent and the G Coupe was down by 42 percent, with the G sedan down 22.6 percent.

Hyundai: Star of the Month

Hyundai is putting together an improbable run during this improbably awful car market. Its January sales rose by 14 percent compared with a year earlier, to more than 24,500 units.

The company and outside analysts were quick to credit not only the company's heavily promoted Hyundai Assurance program - which was highlighted in a Super Bowl advertisement - but also the surprising success of its recently launched and all-new Genesis flagship, which picked up more than 1,000 buyers in January.

Genesis was named the North American Car of the Year at the North American International Auto Show last month, an honor that "further spurred" the car's momentum, said Hyundai's Zuchowski.

Hyundai's Eastern sales region saw a 20-percent sales increase over last January and Hyundai said the Assurance program, "gets to the root cause of today's economic concerns - fear of job loss - and shows consumers we have faith in them, and faith in our economy."

He said after being "encouraged" by the company's strong start in January, Hyundai executives are "hopeful that this energy can be sustained into February as we launch the new Genesis Coupe and Elantra Touring."

Sales of several other Hyundai models - Accent, Sonata, Santa Fe and Veracruz - also increased in January over a year earlier.

Subaru Boxes Out a Gain

Joining Hyundai as one of the few automaker on the positive side of the ledger in January was Subaru of America Inc., racking up an 8-percent gain compared with January 2007. Most of Subaru's overall boost was attributable to an outrageous 115-percent leap in Forester sales, a record month for the model.

Subaru moved 5,162 Foresters in January, the company said, vastly outstripping the 2,402 Foresters sold in January 2008. But Forester wasn't Subaru's only positive mover: Legacy gained by 20 percent and the Outback enjoyed a 27-percent increase.

Subaru's Impreza compact lost 5 percent, but the company's overall results were dragged by the continuing weakness of the Tribeca crossover - Subaru moved just 415 for the month, a 54-percent drop from last year.

"In January, we maintained the momentum we established in 2008. The fundamentals - our products and dealers - are strong for Subaru." said Tim Colbeck, vice president of sales for Subaru of America, Inc., in a statement. "The value, performance and durability of our product line-up keeps us well-positioned for the current market."

Subaru's sales totaled 12,194 units for January.

German Makers Not Immune to U.S. Downturn

All three of the frontline German automakers endured sharp January declines in U.S. sales, though not a deep as their Detroit Three counterparts.

Audi of America Inc., with a profile surging from a host of new and acclaimed models, could not translate its high-flying image into positive sales, as the brand dropped 26.4 percent in January.

Leading the decline was a startling 65.1 percent drop for the A8 flagship, to a mere 95 units. The TT coupe, which enjoyed some against-the-current gains in the last half of 2008, slid 51.8 percent in January. And the new-ish Q7 crossover declined 44.7 percent. Equally troubling for Audi, the totally redesigned A4 sedan, the brand's best-seller, was off 29.4 percent in January.

Audi's beacons were its low-volume A5 coupe, gaining 76.3 percent and the R8 supercar, gaining 75.4 percent on 107 units sold.

At BMW of North America Inc., the January decline was a comparatively healthy drop of 15.5 percent. The only BMW model to post a gain was the X5 crossover, improving sales by 23.3 percent, to 2,875 units.

BMW's anchors included 7-Series flagship, dropping 96.8 percent to 23 units in anticipation of an all-new replacement, and the Z4 roadster lineup's 87.6-percent plunge, as the market also awaits a replacement. The best-selling 3-Series slid 26.8 percent.

Equally troubling was the performance of BMW's Mini brand, usually more immune to the market's recent downturn. Although Mini's overall 15.4-percent decline handily outpaced the broad market, the bread-and-butter Cooper hardtop was off by a heavy 31.3 percent. Mini's overall performance was bolstered by the additional volume from the Clubman model, adding 554 units of the brand's 2,082 total sales in January.

Mercedes-Benz North America Inc. bore a 42.9-percent plunge, led by the R-Class (-75.9 percent) and the S-Class flagship (-68.6 percent). No Mercedes model recorded a sales gain in January; the brand's best performance came from the entry C-Class, which dropped 34.8 percent.

Volkswagen of America Inc., in the process of building a new assembly plant in Chattanooga, TN, posted a comparatively tame loss of 11.6 percent in January, despite the fact no VW model recorded a sales gain.

The worst-performing VW model was the New Beetle, off 54.5 percent. And the Rabbit/Golf/GTI lineup dropped by 47.2 percent and the Passat line by 46.1 percent.

VW's volumes were bolstered by several new models, however, including the Tiguan, which sold 762 units and the Passat CC, sales of which VW curiously reports separate from the Passat sedan/wagon; VW sold 1,072 Passat CCs in January.

PHOTOS:

1. Hyundai Genesis (courtesy Hyundai Motor America)

2. Chevrolet Silverado down 33.6 percent (courtesy General Motors Corp.).

3. Rough January for Cadillac STS, which declined by 75 percent (courtesy General Motors Corp.).

4. Despite being essentially all-new, Ford's F-150 pickup sank 38.6 percent in January (courtesy Ford Motor Co.)

5. Ford Edge dropped 54 percent in January (courtesy Ford Motor Co.)

6. Jeep Wrangler lineup a small bright spot for Chrysler in January with a 4-percent sales increase. (courtesy Chrysler LLC)

7. Dodge Caliber compact car slid 78 percent compared with January 2008.

8. Toyota's Camry midsizer dropped 36.8 percent in January (courtesy Toyota Motor Corp.)

9. Yaris compact car, a winner for Toyota in 2008, started 2009 with a heavy 44.3-percent sales decline (courtesy Toyota Motor Corp.)

10. Nissan Z sports car rose 47 percent in January (courtesy Nissan North America)

11. Subaru Forester posted giant 115-percent gain in January.

12. New A5 one of Audi's positive performers in January.

13. BMW's best-selling 3-Series line wasn't a best-seller to start the year. 

Bill Visnic:  is an AutoObserver Senior Editor. Follow @AutoObserver on Twitter