U.S. Market Fall in April Hurts Across the Board; Gainers are Few

April 2007 was a dismal month for the industry, as a depressed housing market, a sub-prime mortgage market meltdown, rising gasoline (petrol) prices, and falling consumer confidence all conspired to bring sales in at 7.6% lower year-on-year (y/y). To date, for the first four months of 2007, sales are down 2.9% for the U.S. market to 5.4 million units.

Out of the entire industry, only BMW, Mitsubishi, and DaimlerChrysler (DCX) posted sales gains for the month of April. At DCX, the continued runaway success of the four-door Jeep Wrangler unlimited as well as the incremental volume provided by the Patriot and Compass crossover-utility vehicles (CUVs) continues to bolster Chrysler Group, which reported a y/y sales increase of 2.0% for the month of April. Individually, Jeep brand sales were up 29.0%, while Dodge sales fell 5.0% and Chrysler brand was down 1.0%. More significantly, Chrysler inventories are down 18.0% y/y, down to 482,786, a drop from the 80-day supply seen in April 2006 to the 60-day supply currently seen.

General Motors (GM) saw sales drop 9.5% for the month, with company sales analyst Paul Ballew attributing the decline to GM's deliberate reduction in sales to daily rental fleets. GM posted a 36.0% drop in sales to rental fleets in April, but claims that 15 models in the line-up saw y/y retail sales increases. To date for 2007, GM claims that just 13% of total sales were to daily rental fleets, the lowest percentage seen by the automaker in five years. GM reported that gains were seen in the Saturn brand, up 29% based on the strength of the Outlook CUV and Aura sedan, GMC is up 17% due to the Acadia CUV and Sierra pick-up, and Cadillac enjoyed a 2% improvement in April. "With new products such as the Buick Enclave, Cadillac CTS and Chevrolet Malibu still to come this year, we expect to build on this customer enthusiasm," said Mark LaNeve, GM vice-president of North American sales.

Ford saw sales drop across the board, with nearly every brand taking a hit as the company posted a 12.9% y/y drop, and a 13.1% fall year-to-date. Only Lincoln and Land Rover posted gains; Lincoln's coming from the introduction of the MKX CUV, and Land Rover seeing a 11% gain on the introduction of the LR2 small sports-utility vehicle (SUV). The Ford brand fell a total of 14.0%, and this time, the absence of the Taurus and Freestar cannot account for the total loss. F-Series pick-up sales were down 12.4%, and Explorer sales also came in lower.

The Asian Brands Fall Short

Unlike prior months for 2007, the industry lost ground across the board for April. Even the vaunted Toyota group, which has seen record sales time and again over the past several months, saw sales drop 4.3%. Interest in fuel-efficient cars is high, according to Toyota vice-president of vehicle operations Ernest Bastien. He stated that a clear-out of Scion models was a big factor in the decline, but sales of larger Toyota cars such as Avalon and 4Runner took a dive. Even the successful FJ Cruiser CUV saw sales decline for April. "Some consumers are taking a wait-and-see attitude," said Bastien. "Our showrooms still had relatively high levels of traffic, particularly in regards to fuel efficiency. There is some tentativeness on the part of consumers."

Honda and Nissan also took significant drops, with Honda falling 9.1% and Nissan tumbling 18.0% from the same period a year ago. In Nissan's case, the loss brings the company up flat with regards to year-to-date sales, creating a difficult situation for Nissan's heavy reliance on the North American market for profit generation.

Outlook and Implications

Predictions by various analysts and industry executives that the housing market currently in the doldrums would negatively affect the automotive market were generally spot on. With new housing starts at significantly reduced levels, and a huge spate of high-risk mortgages defaulting and causing lenders to tighten the availability of credit, consumers are in a position of not only having little confidence in the market, but also facing serious personal finance crises due to housing costs. The conditions are conspiring to force consumers to hold off on purchases such as automobiles, with most companies feeling the pinch of the market. Luxury goods are not as badly affected, as evidenced by record sales at Audi and growth at BMW in a contracting market.

Toyota has an interesting situation, with small efficient cars selling well and large vehicles facing a more difficult time. The rise in gasoline prices is affecting sales as well, but seems to be having the effect of driving more crossover sales, with GM and Ford both posting fair numbers for their newest entries. Year-on-year comparisons for GM and Ford for CUVs are meaningless, as neither companies featured the vehicles in 2006, but comparisons among competitors are worthwhile, and both GM and Ford seem to be doing decently well, if not quite unseating the top Toyota and Honda entries from their sales positions.

Going forward, Chrysler in particular is in a much better position with regards to its inventory than it was last year. A 20-day drop in supply is extremely good news, and shows that tighter controls placed on production after the departure of former sales executive Joe Eberhardt, combined with massive incentive spending earlier in the year, have helped to draw down that unsold inventory. In May, Chrysler Group plans to capitalize on the newly available plethora of small cars that it is offering with a new marketing push aimed at extolling the fuel efficiency virtues of its line-up. With the new Jeep Patriot and Compass both selling very well for the Jeep brand, the Caliber posting better numbers than the defunct Neon, and gasoline prices continuing to rise, Chrysler is in a good position to start getting the word out about its fuel efficiency progress.