Auto Cos Pressured As Truck, SUV Sales Wither On Gas Costs
May 22, 2008: 05:34 PM EST
DETROIT -(Dow Jones)- U.S. consumer demand for sport-utility vehicles and pickup trucks has fallen further in recent weeks as consumers become convinced that $4-a-gallon gasoline is here to stay, raising fresh concerns about the outlook for auto makers and their suppliers.
Ford Motor Co. (F), despite repeated pledges that it would post a pretax profit in 2009, on Thursday abandoned that goal, largely because of the speed by which consumers are switching to more fuel-efficient vehicles. The auto maker said the shift is structural, not cyclical, and it will have to further cut costs and production to adjust to lower demand.
"The overall shift is not a surprise, but the speed is," Ford sales analyst George Pipas said in an interview. "Certain segments are being dropped like a rock. We haven't found bottom on the pickup and SUV markets, and who knows where it will go in June?"
The Big Three auto makers in Detroit have long relied heavily on the success of their pickup truck and SUV sales, which generate far higher profit margins than smaller cars. Though they've taken steps in recent years to reduce their reliance on large vehicles and introduce more fuel-efficient offerings, the bulk of sales at Ford, General Motors Corp. (GM) and Chrysler LLC still come from pickup trucks and SUVs.
Ford Chief Executive Officer Alan Mulally, who two weeks ago assured shareholders that the company's turnaround is on track, said Thursday that the accelerated shift by consumers exhibited over the past two weeks forced the auto maker to change its targets. Ford now expects second-quarter production to be 15% below year-ago levels, while third-quarter output could fall as much as 20%.
The about-face from Ford illustrates the challenges that U.S. auto makers face as the pace of fuel-price increases forces them to take even more dramatic steps to restructure their operations. Despite massive cost-cutting efforts in recent years, GM, Ford and Chrysler have been unable to restore sustainable profits amid a steep decline in U.S. sales as the economy weakens and credit conditions are tight.
"People didn't think gas prices would sustain this level until this year and now it is stuck in the psyche," said Jessica Caldwell, Edmunds.com manager of pricing and industry analysis. "It's not only gas but also food prices and housing, and people are now making economical decisions and that includes downsizing rather than continuing to extend their credit."
GM has planned on the second half being better than the first, while Ford isn't planning on a significant recovery. Chrysler, meanwhile, relies on the U.S. for a majority of its sales and its product portfolio is dominated by gas gulping pickup trucks, SUVs and Jeeps.
Standard & Poor's Ratings Services backed its corporate credit rating for GM Thursday but warned a sharp drop in sales of SUVs and pickups could hurt results and eat deeply into cash reserves.
In April, GM said it was cutting shifts at four truck plants to remove the production of 88,000 full-size pickup and 50,000 SUVs from the auto maker's output this year. A GM spokesman couldn't be reached for additional comment on Ford's announcement.
Chrysler has maintained that it will continue cutting production. It also began a fuel-card incentive in May that locks new car buyers into a $2.99-per- gallon gas price for three years as a way to draw consumers into showrooms.
"Clearly there is movement towards smaller car, SUVs and crossovers, and Chrysler is well positioned for this, but pickup trucks and larger SUVs will continue to serve a large segment of the market," Chrysler spokesman Stuart Schorr said.
Not so, says Pipas, who believes consumers will continue to move away from pickup trucks and SUVs well into the future. The SUV will be relegated to more of a niche product and the pickup will become a purchase made by people who need them, such as construction workers, rather than those who want them but don't need the functionality.
Ford's truck and SUV sales fell 18% in April versus a year ago, while GM and Chrysler posted declines of 27% and 25%, respectively. The comments from Ford on Thursday indicate that the decline is more severe in May.
Ford shares fell 8.2% Thursday to close at $7.16, while GM shares tumbled 3.6% to $18.43. Chrysler, which was acquired last year by Cerberus Capital Management, isn't publicly traded.
http://money.cnn.com/news/newsfeeds/articles/djf500/200805221734DOWJONESDJONLINE000973_FORTUNE5.htm
May 22, 2008: 05:34 PM EST
DETROIT -(Dow Jones)- U.S. consumer demand for sport-utility vehicles and pickup trucks has fallen further in recent weeks as consumers become convinced that $4-a-gallon gasoline is here to stay, raising fresh concerns about the outlook for auto makers and their suppliers.
Ford Motor Co. (F), despite repeated pledges that it would post a pretax profit in 2009, on Thursday abandoned that goal, largely because of the speed by which consumers are switching to more fuel-efficient vehicles. The auto maker said the shift is structural, not cyclical, and it will have to further cut costs and production to adjust to lower demand.
"The overall shift is not a surprise, but the speed is," Ford sales analyst George Pipas said in an interview. "Certain segments are being dropped like a rock. We haven't found bottom on the pickup and SUV markets, and who knows where it will go in June?"
The Big Three auto makers in Detroit have long relied heavily on the success of their pickup truck and SUV sales, which generate far higher profit margins than smaller cars. Though they've taken steps in recent years to reduce their reliance on large vehicles and introduce more fuel-efficient offerings, the bulk of sales at Ford, General Motors Corp. (GM) and Chrysler LLC still come from pickup trucks and SUVs.
Ford Chief Executive Officer Alan Mulally, who two weeks ago assured shareholders that the company's turnaround is on track, said Thursday that the accelerated shift by consumers exhibited over the past two weeks forced the auto maker to change its targets. Ford now expects second-quarter production to be 15% below year-ago levels, while third-quarter output could fall as much as 20%.
The about-face from Ford illustrates the challenges that U.S. auto makers face as the pace of fuel-price increases forces them to take even more dramatic steps to restructure their operations. Despite massive cost-cutting efforts in recent years, GM, Ford and Chrysler have been unable to restore sustainable profits amid a steep decline in U.S. sales as the economy weakens and credit conditions are tight.
"People didn't think gas prices would sustain this level until this year and now it is stuck in the psyche," said Jessica Caldwell, Edmunds.com manager of pricing and industry analysis. "It's not only gas but also food prices and housing, and people are now making economical decisions and that includes downsizing rather than continuing to extend their credit."
GM has planned on the second half being better than the first, while Ford isn't planning on a significant recovery. Chrysler, meanwhile, relies on the U.S. for a majority of its sales and its product portfolio is dominated by gas gulping pickup trucks, SUVs and Jeeps.
Standard & Poor's Ratings Services backed its corporate credit rating for GM Thursday but warned a sharp drop in sales of SUVs and pickups could hurt results and eat deeply into cash reserves.
In April, GM said it was cutting shifts at four truck plants to remove the production of 88,000 full-size pickup and 50,000 SUVs from the auto maker's output this year. A GM spokesman couldn't be reached for additional comment on Ford's announcement.
Chrysler has maintained that it will continue cutting production. It also began a fuel-card incentive in May that locks new car buyers into a $2.99-per- gallon gas price for three years as a way to draw consumers into showrooms.
"Clearly there is movement towards smaller car, SUVs and crossovers, and Chrysler is well positioned for this, but pickup trucks and larger SUVs will continue to serve a large segment of the market," Chrysler spokesman Stuart Schorr said.
Not so, says Pipas, who believes consumers will continue to move away from pickup trucks and SUVs well into the future. The SUV will be relegated to more of a niche product and the pickup will become a purchase made by people who need them, such as construction workers, rather than those who want them but don't need the functionality.
Ford's truck and SUV sales fell 18% in April versus a year ago, while GM and Chrysler posted declines of 27% and 25%, respectively. The comments from Ford on Thursday indicate that the decline is more severe in May.
Ford shares fell 8.2% Thursday to close at $7.16, while GM shares tumbled 3.6% to $18.43. Chrysler, which was acquired last year by Cerberus Capital Management, isn't publicly traded.
http://money.cnn.com/news/newsfeeds/articles/djf500/200805221734DOWJONESDJONLINE000973_FORTUNE5.htm