October U.S. Sales Report: Ford, GM, Toyota Up, DCX Flat

October 2006 turned out to be a fair month for U.S. auto sales, up 6.5% from the October 2005 period. However, any comparison of October 2005 to October 2006 must take into account a number of factors. The seasonally adjusted annual sales rate (SAAR) for October 2005 was unnaturally low due to the effects of Hurricane Katrina, the pull-ahead of sales into summer of 2005 from employee pricing incentives, and record high petrol (gasoline) prices. These three factors worked in conjunction to make October 2005 the worst sales month since August 1998, and makes even mediocre performance for October 2006 seem like a great improvement from the year-ago period.

Total sales for the month were right on Global Insight expectations at 1.217 million units. This puts the SAAR at 16.10 million units, unadjusted for the one fewer sales day in October 2006. Car sales were down 2.5% overall while truck sales rose 15.1%, likely based on the recent reduction in petrol prices.

The domestic Big Three had a solid month, with combined market share at 55.2% for this month. The Asian Big Three (Honda, Toyota, and Nissan) also had a decent month, with a total market share of 30.8%. While General Motors (GM), Ford, Toyota, and Nissan posted sales gains in October, Honda slipped slightly and Chrysler group dropped nearly a full percentage point in market share, from 14.4% in October 2005 to 13.1% in 2006.

Inventory has been the big story recently, with the domestic Big Three posting varying situations. GM is in a decent position, with 1,050,000 units on hand and a target of 1 million even by the end of the year, but concerns over the 250,000-strong GMT800 2006 model-year pick-up inventory remain as the company begins to ramp up production of the new GMT900. Still, GM features only 20% of its inventory as 2006 models, the best number among the domestics. Ford's inventory is improved, with 37% of its 662,000 units being 2006 models. Combined with its drastically reduced production schedule for the fourth quarter, Ford is on track to having appropriate inventory levels by year-end. Chrysler is not in as good a situation, as it still faces 509,000 units at the end of October, only 17.7% of which are cars, and over 45% of which are 2006 models. This means that Chrysler still has a sizeable level of unsold 2006-model trucks and sports-utility vehicles (SUVs), in which incentives have not yet made a decent dent.

The Big Three

GM had the best month of the Big Three, with total sales up 22% versus the same period in October 2005. The big numbers were delivered by strong performances of the Chevrolet Silverado and GMC Sierra pick-ups, which doubled sales volumes from a year ago, and a roughly 46% increase in luxury SUV sales. GM states that retail car sales were up 9%, led by the strength of the Chevrolet Impala, Pontiac G6, and the new Saturn Aura. Fleet sales at GM fell 14% compared to year-ago levels to an unremarkable 75,000 units for October 2006.

Ford had a mixed month, with continued strength of its passenger car line-up overshadowing a mixed performance in the light trucks. The Fusion/Milan/MKZ trio continued to do very strongly, followed by solid performances for Focus and Mustang. Trucks were up just 1%, with sales of F-Series flat but sales of the all-new Expedition and Navigator full-size SUVs quite brisk. Ford's real story was the 73% jump in Taurus fleet sales for its final month of production, a volume that is likely to be keenly felt going forward until the Edge/MKS can hopefully ramp up to fill the gap.

Chrysler continues to struggle with sales and inventory, with a 3% unadjusted decrease in October sales from the year-ago period. Chrysler's new products are starting strongly, however, with sales of the Dodge Nitro SUV, Chrysler Sebring sedan, and Jeep Wrangler SUV posting promising impressive starts. Chrysler's vehicle sales are still smarting from the changeovers to new vehicles, as the absence of the Stratus sedan and slowdowns in minivan sales fail to be offset by increases in Dodge truck sales. The all-new Wrangler had its best sales month ever, posting a record 8,679 units in October.

Toyota Still Sets its Own Pace

In sharp contrast to the rest of the industry, Toyota continues to lead the Asian automakers by posting its best-ever October sales for Toyota and Lexus brands. Toyota sales were up 13.6% overall, with 14.6% improvement at Toyota and 7.0% at Lexus. The Camry sedan had its best-ever October, and the light truck division saw sales climb 27%. Nissan saw sales climb 3.9% on the strength of the newly introduced Versa and Sentra, and is anticipating further increases as the new Altima sedan comes fully up to speed. Honda saw a slight drop this month after posting strong numbers based on Civic sales last month, joined in the decline by Hyundai, Suzuki, Mazda, and Subaru.

Outlook and Implications

October is typically a soft sales month, with the aftermath of summer sales and consumers saving for holiday spending. Economic indicators are troubling this time around, with housing and consumer spending down for the foreseeable future. This bodes ill for the domestic automakers, which still rely heavily on the strength of high-margin pick-ups and SUVs for the bulk of their profits. Housing and related industry spending is directly related to the market for pick-up sales, and both seem relatively flat overall, despite some gains this month by GM and Chrysler from petrol-price related sales.

Inventory is also a place of concern, with Chrysler's recent announcement of an additional 50,000 "unassigned" vehicles not previously accounted for in reported inventory numbers. GM is in a decent inventory position, and Ford looks to be solidly on its way to meeting targets set for the end of the year. But with Chrysler's unsold inventory still by and large 2006-model trucks and SUVs, further incentives will likely be necessary in order to move them before the awkward situation at the end of the year, when dealers are trying to sell the previous model year's vehicles in a new calendar year. Either way, the overproduction of vehicles without registered dealer orders looks likely to be an expensive situation for Chrysler.

A trend coming to light across the board for domestic automakers is the conscious trend away from low-margin fleet sales. Ford stated that this will likely be the last month for quite some time where fleet sales were seen to increase, as the large volume filled by the Ford Taurus to fleet customers will not be filled by other Ford vehicles. Ford sales analyst George Pipas stated that the Taurus volume would not be replaced, and that Ford is essentially walking away from this fleet business. Ford also stated that with the demise of the Taurus, that the days of 200,000-plus sales on car nameplates is over. "We're just not set up for it," stated Pipas, saying that Ford is instead choosing to set up its production to match demand, in order to defend residuals.