January 2006

U.S. Vehicle Sales Flat in 2005

A lackluster December was expected to cap a dismal year for U.S. automakers, who saw Asian competitors eat away at their market share throughout 2005. Analysts are forecasting a weaker month than December 2004, as the impact of traditional year-end deals was muted by deep discounts over the summer. However, the month's sales are likely to be vastly improved from the autumn slump that followed the end of the summer's promotions.

Full-year sales were expected to be essentially flat, but with market share losses for the Big Three, whose best sellers - gas-guzzling trucks - fell out of favor. General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group had a combined U.S. year-to-date market share of 57 percent at the end of November, down from 60 percent two years before. Robert Barry, an analyst with Goldman Sachs, estimated their December market share at 54.5 percent, down from 58.1 percent last year.

Early numbers released midmonth indicated that sales got off to a slow start in December, traditionally a time of brisk sales thanks to year-end deals. U.S. sales were down 14 percent for the first 11 days of the month, according to the Power Information Network, a division of the marketing research and consulting firm, J.D. Power, and Associates.

Though the pace picked up later, analysts John Murphy of Merrill Lynch and David Healy of Burnham Securities, both predicted December sales would be 5 percent below year-ago levels.

GM, Ford and Chrysler saw sales soar to near-record levels this summer with discounts that let consumers pay the employee price. But sales plummeted as soon as the discounts expired in October. "The programs were more about 'reallocating sales' than stimulating demand," Barry said in a research note.

Sarah Karush, Associated Press

US Auto Market Sales Forecast 16.8 million units for 2006

Automotive experts predict 2006 will look a lot like 2005: a decent national economy, steady sales, but high gas prices—and more brutal competition for automakers.

Even with the stable sales outlook, it’s unclear when the automotive operations at General Motors Corp. and Ford Motor Co. will become profitable again, putting pressure on the automakers to reduce costs, preserve cash and boost revenues.

The industry is expected to finish 2005 with sales of about 16.9 million units. Paul Taylor, chief economist for the National Automobile Dealers Association, forecasts industry sales of about 16.8 million next year. Sales are still down from a peak of 17.4 million in 2000, but they are holding steady.

Beneath the sales outlook, there is good news and some bad news for Detroit automakers, Taylor said. Sales should remain strong for some of Detroit’s newest models, such as the Chrysler 300, Ford Mustang and Fusion, and the Pontiac Solstice.

But the North American market will continue to be deathly competitive, with competition from Toyota, Honda, Nissan, Hyundai and Kia keeping prices down. Foreign automakers also will add new models and U.S. factory space to boost output next year, adding to the pressures.

GM and Ford will be undermined by high operating costs, volatile gas prices, rising interest rates and uncertain consumer confidence, according to Scott Sprinzen, analyst with Standard & Poor’s.

"Market share for these two companies has eroded significantly, and sales of their most profitable products have plummeted," Sprinzen said.

Auto Suppliers Hampered by Production Declines at GM and Ford through 2008
Production cuts at Detroit’s two biggest automakers and ongoing pricing pressures will continue to hamper auto parts makers in 2006.

"You’re going to see production declines by both GM and Ford through 2008," said BNP Paribas analyst Brad Rubin. "That’s going to have a negative impact on any supplier that has a large dependence on GM and Ford."

GM and Ford are expected to cut 2006 output by 5 to 10 percent each, Rubin said. The reduced output will make matters worse for part suppliers such as Delphi Corp. and Visteon Corp. that are already struggling financially. It’s unclear when they will become profitable.

Key concerns for North American auto suppliers in 2006 are a potential strike at Delphi and its impact on GM; uncertainty about GM’s new large SUVs and pickups; and fluctuating gasoline prices that threaten to keep light truck sales depressed.

Raw material prices are expected to remain high, too, hurting suppliers, many of which have been unsuccessful this year at passing the cost on to automakers.

The industry could see additional consolidation in 2006 as outsiders such as Wilbur Ross take advantage of low prices and suppliers shed non-core business lines. And 2006 could see more suppliers reorganize under bankruptcy. But more credit downgrades are expected in the near term for auto suppliers, and they will continue to outpace upgrades, S&P says.

Japan's Daihatsu Motor Co. plans 19.8 percent increase in Production to 1.398 million vehicles for 2006

Japan's Daihatsu Motor Co., the minivehicle arm of Toyota Motor Corp., said it plans to produce 1.398 million vehicles globally in 2006, up 19.8 percent from this year.

Daihatsu, Japan's second-biggest maker of 660cc minivehicles after Suzuki Motor Corp., forecast 17.3 percent growth in overseas output to 332,000 units, and a 20.6 percent jump in domestic production to 1.066 million vehicles.

The numbers include vehicles built by Daihatsu for sale under the Toyota badge.

Daihatsu, which primarily serves the stagnant Japanese market, forecast a 4.5 percent rise in domestic sales to 630,000 units, and a 10.7 percent climb in exports to 124,000 units.

Daihatsu is aiming to boost its presence overseas to ensure continued growth, but faces tough competition from rivals such as Suzuki Motor and South Korea's Hyundai Motor Co., which have secured a strong foothold in emerging markets such as India and China.
Reuters

UK New Car Sales down 5 percent in 2005 to 2.43 million cars

Sales of new cars have fallen at their fastest rate for more than 11 years. The data from the Society of Motor Manufacturers and Traders (SMMT) followed what was generally recognised as a bumper year for car sales in 2004.

About 2.43 million cars were sold in 2005, down 5 per cent on sales of 2.56 million the year before, the SMMT said. The fall is the biggest since 1994 and the first time new car sales have slipped below 2.5 million since 2001.

However, a spokesman for SMMT said the drop followed an "unsustainable high" last year. He said: "We saw a fantastically high level of car sales in 2004 after two years of growth and now there is a levelling out, although it is still at a very good level. It is caused by interest rate rises and we expect a further 2.5 per cent fall in sales next year, but the industry has nothing to worry about."

Professor Garel Rhys, the head of the centre for automotive industry research at Cardiff Business School, said the fall was "very considerable and significant" and reflected caution among consumers. He forecast a further sales drop of 2 per cent next year, with a rise in 2007.

He said: "The 2005 sale still makes the UK market one of the biggest in the world. But it is not going onwards and upwards."

The full SMMT statistics on 2005's car sales will be published next week and are expected to show that the Ford Focus was, for the sixth year running, the best-selling car in 2005, followed by Vauxhall's Astra and Corsa.

Canadian Sales of cars and light trucks will drop in 2006 to 1.57 million

Vehicle production and sales in Canada and the United States will slow in 2006 as high gasoline prices eat into disposable income, according to an outlook from Scotiabank.

The bank's Global Auto Sales Outlook said employee discounts in 2005 resulting in the likely peaking of sales figures in both countries. It estimates that sales of cars and light trucks will drop by 20,000 in 2006 to 1.57 million.

The bank's Global Auto Sales Outlook said employee discounts in 2005 resulting in the likely peaking of sales figures in both countries. It estimates that sales of cars and light trucks will drop by 20,000 in 2006 to 1.57 million.

Going forward, [sales] volumes will be dampened by high gasoline prices and other energy costs, now absorbing a record share of disposable income," Scotiabank senior economist Carlos Gomes wrote.

The outlook says the slowdown will be concentrated in central and eastern Canada, with sales in Alberta setting new records as the oil and gas sector continues to expand.

Scotiabank estimates that vehicle production in Canada will drop by 50,000 to 2.6 million in 2006.  In the U.S., the slowdown will be more pronounced. The bank's forecast calls for 16.5 million vehicle sales, down 500,000 from 2005. "Energy and interest costs now absorb a record one-quarter of overall household disposable income," Gomes said.

The report pegged China as the world's fastest growing auto market in 2005, with sales up 18 per cent. Scotiabank economists are looking for a further 10 per cent increase in 2006.

Sales in Mexico and South America are forecast to rise by 5 per cent in 2006 as interest rates move lower.