October Sales Cool Off

2003 Dodge Ram 2500
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U.S. auto sales cooled off with the October frosts and California wild fires. But automakers say it’s the pause before the holiday storm of heavier incentives and showroom traffic as they sprint to the New Year in search of profit and market share.

October’s sales of cars and light trucks ran at a seasonally adjusted annual rate of 15.7 million, with total volume up 0.2 percent from October 2002, according to Autodata. Those results were below analysts’ expectations of a 16.1 million rate, and down from the 16.7 million rate in September and the 18.9 million rate in August.

Automakers say the improving economy, evidenced in third quarter gross-national-product figures, should bolster sales for the next few months.

“The economy is starting to fire on all cylinders,” said Jarlath Costello, an economist for Ford Motor Co. “We expect the sales pace to quicken throughout the year-end.”

The numbers

GM sales were down 7.7 percent and Ford was down about two percent. Chrysler managed an 11-percent gain on a weak year-ago comparison. Chrysler was lifted by a 46-percent sales gain for Dodge Ram, and better retail sales Jeep models.

Nevertheless, the Big Three have lost a combined 1.5 points of share so far this year, while Toyota, Honda and Nissan have gained 1.9 share points. Toyota was up 12 percent, while Nissan was up 18 percent. Hyundai was up ten percent. VW was down five percent. Honda brand sales were down three percent, as the company didn’t play as aggressively as others in rebating.

Goldman Sachs auto analyst Gary Lapidus noted that if automakers are waiting for the consumer to feel better about the economy so they can reduce discounts, they are deluding themselves. “The consumer recovered long ago...more to the point, hardly faltered.”

Lapidus said that reductions in rebates are invariably leading to lower sales volumes. As long as there is capacity to build 20 million vehicles, the discounting to move even 17 million will remain unabated. General Motors, especially, can’t afford to let its sales volume and market share fall below 27 percent because if its enormous fixed labor and retiree costs. GM sales analyst Paul Ballew said it will be difficult for GM to “three-peat” a market share gain this year over 2002. But sources at GM say the company is going to pull out the stops in December or earlier to do just that, even if it has to pad out fleet sales. Cadillac is on track to top 200,000 sales this year. Chevy sales are up 16 percent year-to-date. Buick, Pontiac, and what's left of Oldsmobile continue to drag sales, while Saturn and GMC are about flat from last year. Hummer and Saab sales are way up, but Saab is aggressively leasing the 9-3, and Hummer discounts are showing up to clear dealer lots.

Shocks and awes

Wall Street analysts were shocked over Chrysler’s 46-percent gain for the Dodge Ram pickup in a month when Ford has spent over $100 million since Labor Day to push a new F-150 pickup. Both Dodge and General Motors have between $5000 and $6000 in discounts on their trucks, but Dodge has been generating extra interest through an ad campaign for its unique “Hemi” engine. “Most people still don’t know what Hemi is, they just felt like they have to have it, or it gets them to the showroom," says Chrysler sales chief Gary Dilts.

Not all the Asian brands are faring well. Mitsubishi and Suzuki continue to struggle for sales, as Mitsubishi has had to cut back on the crazy no-payment for a year sales incentives that led it to take an enormous second quarter loss and oust its American chief executive. Suzuki simply can’t achieve an adequate share of voice in the market, despite new products. Isuzu’s sales remain pathetic as few people can comprehend why it still operates a sales channel in the U.S. Mazda posted a 52-percent sales gain on the strength of the RX-8, Mazda6, and revitalized Tribute sales, though.

One final undercurrent running through the sales numbers is at Ford, where the non–blue oval divisions are showing weaknesses in the face of new products. Mercury, Jaguar, and Land Rover are showing disappointing year over year sales, despite a fresh Jag XJR and Range Rover. Word is out in the marketplace that the best deals in the industry are used Jags and Range Rovers with certified used-car warranties. Residual values of Ford’s Brit brands fall faster than a dot-com stock did in 2000. Volvo, though, is on its way to a full rebound next year on continued brisk sales of the XC90 SUV and sales of the soon-to-arrive S40/V40.