March auto sales drop, GM off 13 percent

1/04/2008 - 21:33

By David Bailey

DETROIT (Reuters) - U.S. auto sales dropped in March, led by a 13 percent decline at General Motors Corp , as weak housing and tight credit markets pushed the battered industry to a weak close for the first quarter.

Toyota Motor Co <7203.T>, with the second-largest U.S. market share behind GM, said on Tuesday it saw sales fall 3.4 percent and that it would be forced to lower its full-year sales expectations for the U.S. market after cutting back on its U.S. truck production.

Ford Motor Co sales fell 7.6 percent. Sales for Chrysler LLC sales were down 13.2 percent.

Japan's Honda Motor Co Ltd <7267.T> and Nissan Motor Co Ltd's <7201.T> both outperformed the declining U.S. industry in March. Sales at Honda were up 4.2 percent. Nissan posted a gain of 3.6 percent.

The results underscored the continuing weak trend for the U.S. industry -- especially for the Detroit-based automakers -- and touched off a debate about whether the U.S. economy and auto sales would improve in the second half.

Executives at GM and Toyota both held out the prospect that the U.S. market would stabilize in the current quarter and then trend higher heading into 2009 as consumer confidence recovers from the battery of concerns that hit in March.

"I think the main weakness is consumer confidence," said GM sales chief Mark LaNeve. "It's (mortgages) resetting. It's worry about the news. It's presidential candidates telling you how bad it is. It's Bear Stearns."

Sales of pickup trucks and SUVs fell again in March, extending a recent trend that has hit the truck-heavy line-ups of the Detroit automakers hard as consumers turn to smaller sedans and more fuel-efficient crossover vehicles.

"This is a very challenging external environment, reflecting a seismic shift in consumer preferences," Ford marketing chief Jim Farley said in a statement. "These conditions will likely persist in the near future."

Auto sales represent one of the first monthly snapshots of U.S. consumer demand and investors have looked to these early reports for signs of whether the world's largest economy has slipped further toward recession since the start of the year.

U.S. auto sales fell 2.5 percent in 2007 to 16.15 million vehicles, the second consecutive annual decline.


Industry analysts have begun to lower forecasts for 2008 with most estimates now ranging from about 15.5 million vehicles to just below 15 million for the year.

Toyota said the industry clearly would not reach its forecast for U.S. sales of 16 million in 2008, and it would cut its full-year forecast in light of the weak first quarter.

The downtrend increases pressure on Detroit-based carmakers to cut costs further and have forced them to raise incentives from year-earlier levels despite a focus on cutting production to match sagging demand.

Discounts, including rebates and concessional financing, were heaviest on vehicles such as trucks, where concern about fuel efficiency and anemic demand from the construction industry caused sales to tumble.

"It was a very soft traditional truck month," LaNeve said. "I don't think that will surprise anyone."

GM said a five-week old strike at parts supplier American Axle & Manufacturing Holdings Inc had cost it 100,000 vehicles of production but has not affected its retail sales.

Ford, which expects its market share to be near 15 percent in the first quarter, about flat from 2007, said it was not forecasting a substantial recovery in the U.S. economy.

"We think there is a lot of uncertainty around all the issues, especially the credit availability for consumers," Farley said. "At this point, my sense is that the next quarter may be our most difficult of the year."

Automakers raised sales incentives by 4 percent to an average of $2,519 in March from a year earlier, according to industry tracking service Edmunds.com.

Full-size pickup trucks carried the highest average incentives at $4,368, followed by large SUVs at $4,094, Edmunds.com said. Chrysler, GM and Ford were the top spenders on incentives, in that order.

Sales for the major automakers were adjusted for two fewer selling days in March compared with a year earlier. Selling days is the measure of sales favored by GM, Toyota and financial analysts.

The two fewer selling days accounted for a roughly 6 percentage point difference between adjusted and unadjusted sales results.

(Additional reporting by Kevin Krolicki and Soyoung Kim, editing by Richard Chang)

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