Ford and GM Sales Plunge

Sales for December for both automakers were down significantly. Ford’s sales were down 13% compared to December of 2005, and for GM’s sales were down by 9.6%.

Ford’s popular F-Series sales had dropped 21 percent versus December 2005, but car sales were 5 percent higher than last year, due to higher gas prices, weaker housing industry and the consumer shift away from SUVs and trucks.

“This year-over-year decline is not a surprise. The drop of approximately 400,000 units is largely attributed to the production cuts that the domestics announced at the beginning of the year,” said Jesse Toprak, Executive Director of Industry Analysis for Edmunds.com. “We didn’t expect an increase in sales for the year since the cost of gasoline and other economic trends made many people hesitate before buying a new car in 2006.”

Not sure I buy that line about the decline being due to production cuts. If people wanted to buy those 400,000 units production wouldn’t have been cut. The impact of gasoline prices, the slow down in the housing market, and the slowing economy as a whole though does provide a more reasonable explanation as to why the auto industry has taken such a beating.

FILED UNDER: Economics and Business, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. I would add in the record low interest rates that are a thing of the past now. A lot of people who would have potentially bought in 2006 bought previously when interest rates were low and aren’t ready to trade in yet.

    I would also be interested to see car sales as a function of fuel efficiency. If more fuel efficient cars are selling strongly and Ford/GM just have the wrong mix (ala 30 years ago), then I would believe their contention that gas prices are pushing down their sales. If the fuel efficient cars are also doing poorly, then its another story.

  2. Bithead says:

    Not sure I buy that line about the decline being due to production cuts. If people wanted to buy those 400,000 units production wouldn’t have been cut.

    I’m afraid I’m going to have to cry “foul” on this one. You are making the unwarranted assumption that the larger vehicle was a regulated out of existence by the government….cafe standards, as an example.

  3. Bithead says:

    correction: Was NOT regulated…

  4. floyd says:

    The actual cause of the enhanced slump in car sales is a combination of things. Among these is leasing and dependence on rebates. The automotive market is cyclical. Anything done to avoid the down cycle only postpones and enlarges it.Sticker shock and an abundance of off-lease cars are two more reasons. the very purpose of some lease programs is to provide a stream of “quality” used cars. This affects new car sales by effectively postponing their sale.Another problem is the incompetent sale of credit, which is just another stretch of the market with a built in consequence.

  5. DC Loser says:

    None of the previous comments answers why this is the case with GM and Ford, whereas Toyota’s sales are still growing. Toyota also have quite a few gas guzzlers in the Tundra pickup and Sequoia and Land Cruiser SUVs that are still selling well.

  6. floyd says:

    DC loser; Toyota plays the market in a more staight”forward” way. Eventhough they are overpriced,they are more consistent in their sales approach. Their sales cycles will therefore follow a slightly different pattern.This year’s prognosticators will have plenty of egg on their faces come fall of ’08. All makers are subject to the general trends. Toyota is merely slightly out of sync.

  7. DC Loser says:

    Floyd – I’m not trying to be flippant, but when was the last time Toyota sales actually went down? The global demand for cars isn’t going down, but up.

    Here’s an excerpt from today’s WSJ:

    Toyota Motor Corp., coming off fresh market-share gains and a steep drop in sales by its Detroit competitors last month, is poised to turn up the heat further on the Big Three by naming a site in the Southern U.S. for its eighth North American assembly plant as early as this month, people familiar with the matter said.

    The opening of an eighth plant, a move Toyota has been pondering for months, would signal the company is gearing up for a drive to wrest even more of the U.S. market from the domestic car makers in the next several years. It would also further strengthen Toyota’s hand politically should a new backlash against foreign brands arise out of the increasing troubles of the domestic auto makers and their suppliers. General Motors Corp., Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group are all losing money in their North American auto operations, in part because of declining sales of their profitable full-size trucks and sport-utility vehicles. The shift of consumer tastes to more-fuel-efficient cars has helped Toyota, Honda Motor Co. and other Asian auto makers gain share in the past year.

    The Big Three again suffered last month, according to sales figures released yesterday, capping a tough 2006 for Detroit. Toyota posted market share of 15.4% for the year, supplanting DaimlerChrysler, with 14.4%, as the No. 3 U.S. auto maker. GM and Ford posted market shares of 24.6% and 17.5% respectively, according to Autodata Corp.

    GM’s vehicle sales fell 13% and Ford’s 13% in December, compared with the same month in 2005, while DaimlerChrysler’s fell 1%. Toyota, however, saw its vehicle sales climb 12%. Overall U.S. auto sales fell 3.6% in December from December 2005 to 1.4 million vehicles.

    Total annual U.S. sales last year dropped to 16.56 million light vehicles from 17 million in 2005. Setbacks for the Big Three accounted for much of the decline. A persistent housing slump and relatively high fuel prices are expected to further damp vehicle sales this year, with many analysts predicting 2007 sales at or just above 16 million. That would be the lowest total in nearly a decade. The drop comes ahead of negotiations this year between the Big Three and the United Auto Workers union, which has already made concessions in job cuts and benefits.

    I think the crux of the problem isn’t just the cyclical nature of the business, but the perceived value and desirability of the product. The big 3 can’t sell their cars without rebates, while Toyota and Honda can get theirs off the lot without them. Come the end of ’08, my prediction is that Ford and GM, and maybe even Chrysler will be in even worse position, and Toyota sales will still be on the upswing.