Car Sales Tanking Again

May 28, 2008
Despite the unexpectedly warm weather, it was a gloomy Memorial Day holiday here in Detroit. The traditional start of the summer season is normally marked by a mass migration “up North,” as Michiganders of virtually every persuasion drive upstate to their vacation cottages. This year, with fuel prices rising, seemingly by the hour, traffic on I-75 was surprisingly light.

It wasn’t just the price of gas that had folks rethinking their vacation plans. The mood in Michigan is somber, at best, these days. Ford, as regular readers know, announced last week it will miss its goal of clawing back into the black next year. And as you’ll see in another posting this morning, Ford plans to eliminate up to 12 percent of its white-collar workforce to help cover its mounting losses. The situation is only slightly better elsewhere in Detroit. So whether you work for an automaker, auto supplier, new car dealer – or just sell clothing at Somerset Mall – there’s not a lot to celebrate, right now.

And, as if to hammer that message home, analysts at Deutsche Bank report that things aren’t going to get any better, at least not for a while. A mid-month survey of U.S. retailers reveals that May is likely to bring another 8 percent decline in vehicle sales. Of the top six American and Japanese makers, only Honda seems to be gaining ground; thanks to new product, it’s looking at a hefty, 20 percent increase for May, according to DB analysts. But Toyota will drop an estimated 5.5 percent, with Nissan down 1 percent. That’s actually good news, because the Japanese appear likely to gain about 0.2 point of market share.

Detroit’s Big Three continue to lose ground, with General Motors and Ford both looking at likely 16 percent sales declines, and Chrysler a dip of 12 percent.

During his teleconference with reporters last week, Ford CEO Alan Mulally acknowledged that there are fundamental shifts occurring in the U.S. market. In recent weeks, pickups, for example, have declined from 11 percent of the U.S. market to just 9 percent. That may improve once the housing market recovers, said Mulally, but not to prior levels. And preliminary May sales numbers seem to back that up. If there’s good news in the Deutsche Bank report, it’s that sales of subcompacts and other passenger cars are likely to increase by as much as 25 percent. Truck sales, however, will dip by 30 percent or so.

And for Detroit makers, long dependent on pickups, SUVs, and minivans for their profits, the trends are anything but good. No wonder so many Michiganders stayed off the road this past weekend.

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