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GM bucks expectations as U.S. auto sales drop

1/07/2008 - 20:37

By Kevin Krolicki

DETROIT (Reuters) - U.S. auto sales plunged in June, but a month-end clearance sale helped General Motors Corp retain its No. 1 spot and steer clear of the wipeout many had feared, sending its shares climbing.

Record gas prices and slumping trade-in values for big trucks and SUVs hit truck sales hard, but industry-wide sales fell by a more limited margin than the most bearish Wall Street forecasts, based on initial sales reports from the automakers.

GM posted an 18 percent decline in sales for June, a month auto dealers, executives and analysts had all warned was on track to become the weakest for the industry in years.

Sales for Ford Motor Co were down 28 percent while Toyota Motor Co <7203.T> sales dropped 21 percent before adjusting for the number of sales days in the month.

Honda Motor Co <7267.T>, which boasts the most fuel-efficient vehicle line-up among the major automakers, bucked the downturn and posted a 1 percent sales gain.

GM was the industry's main surprise. GM credited a six-day sale featuring zero-percent financing offers with driving traffic to showrooms at the end of the month, allowing it to head off a challenge for sales leadership from Toyota.

On the adjusted basis tracked by Wall Street analysts and investors, GM's sales were down just 8 percent because June had three fewer sales days than the same month a year earlier, an unusually large skew in year-to-year comparisons.

Shares in GM, which touched a 54-year-low on Monday and have been trending lower for two months, jumped on the June sales result and pulled the broader U.S. equity market higher.

"MOMENTUM"

"We felt that was a very successful month-end merchandising program," GM's North American sales chief Mark LaNeve said, referring to its interest-free loan deal. "It was six days long and really helped build dealer and customer momentum."

GM and Ford said they expected that the U.S. light vehicle sales rate would be near 14 million units for June on an annualized and adjusted basis.

That would be down from 14.3 million in May but still better than the most bearish forecast for a sales rate near 12.5 million units, a result that would have represented the weakest tally in 15 years.

As expected, sales for pickup trucks and SUVs plummeted in the month and the sharp decline in the once market-leading vehicles was only partly offset by stronger sales of small cars and vehicles with more fuel-efficient four-cylinder engines.

GM's chief sales analyst Mike DiGiovanni said the industry-wide sales tally could have been flat from the month earlier if the supply of smaller vehicles had kept up with demand.

"We conservatively estimate that the industry probably wanted to run at 14.3 million (units) but was constrained because of availability on some of the smaller mid-sized-and-below vehicles," he said.

An urgent question for creditors and investors has been whether the cash-strapped U.S. auto industry is headed for an even weaker second half for sales, weighed down by the continued housing slump, tighter credit and high gas prices.

"Consumer fundamentals and consumer confidence deteriorated as the first half unfolded," said Ford marketing chief Jim Farley. "The economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty."

(Reporting by David Bailey, Soyoung Kim, and Poornima Gupta in Detroit; Writing by Kevin Krolicki; Editing by Brian Moss))


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