Oil Prices Up, Sales Off in ‘06

January 26, 2006

Sales of new vehicles in January don't look very promising, according to a new survey by the Power Information Network maintained by J.D. Power & Associates ofWestlake Village, Calif.

In addition, gasoline prices are beginning to move upwards again, putting new pressure on motorists and manufacturers who had been counting on relatively stable oil prices to boost consumer confidence and sales of new vehicles, raising the possibility carmakers will be unable to avoid heavy-duty incentives as the year progresses.

The report from the Power Information Network estimated that new-vehicle retail sales were down 11 percent through the first 15 days of January when compared to the same time period a year ago.

GM's retail sales when compared to early January 2005 dropped 28 percent while Ford Motor Co.'s fell 25 percent in the first 15 days of January. DaimlerChrysler sales were down 13 percent when compared to the same period in 2005. Domestic manufacturers generally tend to do better once the fleet sales numbers are added to the mix.

Trends stay the same

 

"The trends haven't changed very much—the domestics continue to slip while the Asians gain ground," said Tom Libby, senior director of industry analysis at PIN. "To combat this trend, GM, for one, is counting on its aggressive price reductions, which just went into effect on the 11th," he said.

Joe Eberhardt, Chrysler Group executive vice president for sales and marketing for the Chrysler Group, acknowledged last week that sales were soft this month and said Chrysler has countered the decline by boosting incentives.

Jim Press, Toyota Motor Sales president, also conceded last week that Toyota has been using some tactical incentives on a regional basis to boost sales.

One reason for the overall retail sales decline in the new-vehicle market is that the manufacturers have reduced their incentive offerings, the Power report said. Through the first 15 days of January, the average incentive expenditure per unit was $2,089—down 16 percent versus a year ago.

Incentives were down 20 percent at General Motors, 12 percent at DaimlerChrysler and 2 percent at Ford Motor Company, the Power report said. Incentives for sporty, full-size, mid-size and compact car categories were all down 40 percent or more versus a year ago, while only SUV incentives were up, the report said.

"While retail sales are off to a weak start, fleet sales are expected to pick up the pace and keep January's selling rate for the month roughly in line with last year's 16.3 million unit pace for combined retail and fleet sales," said Bob Schnorbus, chief economist of global forecasting at J.D. Power and Associates.

"The slow start to the new year is consistent with what has been happening in the past few years, and thus should not be too surprising. However, it will keep the pressure on automakers to continue returning to aggressive incentive programs in order to pull sales up as the year progresses," Schnorbus predicted.

Toyota, Hyundai best performers

 

Hyundai and Toyota have had the best retail performance thus far in January. Retail sales for Hyundai were up 19 percent and Toyota Motor retail sales were up 9 percent compared to the first half of January 2005, according to the Power data

In addition, Toyota had the highest retail share in the industry for the first 15 days of the month, up 3.4 points versus a year ago to 18.8 percent. The domestic manufacturers followed Toyota with GM at 17.5 percent, which was down 4.2 points versus a year ago, and Ford Motor Company at 14.7 percent, which was down 2.8 points.

DaimlerChrysler also saw a decline in the first 15 days of January to 12.8 percent, which was down 0.3 points. However, Honda, Nissan and Hyundai have all increased market share versus a year ago, with American Honda at 12.3 percent which was up 1.4 points, Nissan at 8.6 percent, which was up 0.7 point and Hyundai at 5.7 percent, which was up 1.4 points.

Meanwhile, gasoline prices have risen for the third straight week and the price of crude oil jumped again last week on reports of labor unrest in the Nigerian oil fields and political tension in the Middle East over Iran's drive to secure nuclear energy and possibly nuclear weapons.

In Southern California, the average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $2.450, which is 4.6 cents higher than last week, 20 cents higher than last month and 47 cents higher than last year, according to a new survey.

"Motorists might seen prices stabilize over the next week or two, but that could only be a temporary pause," Auto Club spokesperson Carol Thorp said. "Upward pressure on gas prices will increase in February due to reduced production as refineries rush to finish the changeover from producing winter grade to summer grade fuel before the March 1 deadline."

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