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US car sales plunge, heralding bleak 2009

Major automakers reported U.S. sales in December that plunged by more than a third, closing out the weakest year for the battered industry in over a decade and a half in its largest single market.

Chrysler LLC led the industry lower with sales that dropped by 53 percent in December, a month when the struggling automaker and larger rival GM fought to clinch a $17.4 billion bailout from the U.S. government.

Toyota Motor Corp the world's largest automaker, posted a sales drop of 37 percent, followed by Honda Motor Co at 35 percent and Ford Motor Co at 32 percent. GM and Nissan Motor Co saw sales drop by 31 percent.

The plummeting sales for December had been widely expected by analysts and industry planners but seemed certain to raise concerns about the depth of the ongoing recession in the early months of 2009.

The sales figures were also the first since the U.S. Treasury extended an initial $8 billion in loans to GM and Chrysler to avoid a cash crunch that both had warned was looming.

Auto sales in Asia and Europe, which followed the U.S. market into a sharp downturn in the second half of 2008, showed signs of a deepening slowdown as well. Sales across the industry dropped almost 16 percent in France and fell 22 percent in Japan, after a record decline of almost 50 percent in Spain last week. German data is due later this week.

Automakers across the globe are struggling to reduce stocks of unsold vehicles, and many have resorted to temporary plant closures, job cuts and extended holidays for workers.

Ford, the only Detroit automaker that has not sought emergency government funding, said it was braced for initial sales results this year to extend the weakening trend that swept through the industry for most of 2008.

"The first several months of 2009 are going to feel very much like the last few months of 2008," said Ford economist Emily Kolinski Morris. "We see little to indicate a near-term improvement in either financial market conditions or economic activity."

On a full-year basis, U.S. auto sales were on track to end 2008 at their lowest level since 1992 at about 13.5 million vehicles, based on preliminary sales figures. That was down from 16.2 million in 2007.

That 3 million-unit plunge in sales was the steepest for the industry since 1974, when the U.S. economy was still reeling from the impact of the first oil shock. U.S. automakers expect a continued decline in 2009 but held out hope that the pace of the losses would ease.

GM said it expected to keep its 2009 sales forecast unchanged at between 10.5 million and 12 million vehicles, the continued slump it had forecast last month in seeking a bailout from Congress.

"We're optimistic that it's a year that will at least gradually improve and not see the massive deterioration that we saw in the third and fourth quarter of 2008," GM sales chief Mark LaNeve said in a conference call with reporters and analysts.

Shares of Ford rose almost 5 percent while GM gained 1.6 percent Monday. Shares of both automakers have gained since late December on signs that the U.S. government was pushing ahead with a broad rescue for the industry.

As sales-adjusted inventory levels climbed in the fourth quarter, major automakers have been forced to discount more heavily in a bid to stock from dealer lots.

Auto-tracking Web site Edmunds said December auto incentive levels were the highest ever for the month. Ford cited industry data showing that the average discount on a new vehicle had risen from about $3,000 in October to about $3,600 last month.

Hyundai Motor Co, which made its mark in the U.S. market as a lower-cost alternative to Japanese brands, rolled out an unusual marketing campaign that would allow U.S. consumers to return new cars if they lose their jobs.

"In this uncertain economy, we are looking for ways to reassure shoppers that Hyundai still represents the best value in the auto industry," said John Krafcik, Hyundai Motor America's acting chief executive.

Toyota, which has forecast its first-ever annual operating loss, said it would offer new cash-back discounts to U.S. car shoppers in the current quarter and was hopeful that the economy would begin to improve slowly in the second half.

"The sooner stimulus efforts find their way to where they'll do the most good and that's in the hand of the consumer the sooner we'll see a turnaround in confidence levels and a return of buyers," said Toyota Motor Sales President Jim Lentz.

GM and Chrysler, both struggling to shake free of the stigma of potential failure, said they would also roll out new discount offers.

Reuters

GM may not require further US loans

General Motors Corp. said it has enough government loans to cover its worst-case forecast for U.S. auto sales and won't need more if the economy holds up.

Pledges from the U.S. Treasury for as much as $13.4 billion to help GM pay bills and $6 billion to prop up lender GMAC LLC will meet "our liquidity needs under the scenarios outlined in our December plan to Congress," spokesman Greg Martin said yesterday.

GM is trying to win concessions from its biggest union, cut debt in half, and trim brands and dealers as part of a survival plan to restructure its business in exchange for federal aid. The government can call the loans should GM not show progress in a final report due March 31.

"It all depends on a lot of difficult-to-forecast factors, like the size of the market," said John Casesa, a former Merrill Lynch & Co. auto analyst who's now a partner at consulting firm Casesa Shapiro Group in New York. GM's market share, the health of the economy and action by competitors are all unknowns, he said.

GM gained 3.3 percent to $4.07 at 8:16 a.m. before regular New York Stock Exchange trading. The shares tumbled 87 percent last year.

President George W. Bush agreed to the rescue plan after the biggest U.S. automaker said it wouldn't have enough money to pay bills in December.

GM said Dec. 2 that its worst-case scenario for 2009 U.S. auto sales is 10.5 million vehicles. On Jan. 5, the Detroit- based automaker reiterated that domestic sales will range from 10.5 million to 12 million this year, based on the current economic expectation.

GM received the first $4 billion Dec. 31 from the Troubled Asset Relief Program administered by Treasury. The money is being used to pay bills, mostly to its 3,000 suppliers, said spokeswoman Renee Rashid-Merem.

An additional $5.4 billion is due this month. Should Congress agree to release a second $350 billion in TARP funds, GM will get $4 billion more in February. A progress report is due Feb. 17 to the Treasury Department.

The department also gave Chrysler LLC $4 billion Jan. 2 to help it stay in business and said Dec. 31 it has drafted broad guidelines for aid to the auto industry that would let officials provide funds to any company they deem important to making or financing cars. GM relies on GMAC for auto loans and dealer support.

With GM and Chrysler both saying they were only weeks away from insolvency, the White House stepped in last month after a compromise plan backed by Bush and House Democrats stalled in the Senate, raising the prospect of a collapse that would have weakened a U.S. economy already in recession.

U.S. automakers are struggling to pare costs after U.S. sales last year fell to 13.2 million units, the lowest level since 1992, as a global credit crunch hurt buyers' ability to get loans and the slowing economy sapped demand.

The loan conditions require GM and Chrysler to have union agreements on pay and payments to a retiree union health-care fund complete by March 31 and an exchange of debt for equity under way. GM is meeting with advisers on the debt exchange, which has not yet started, said Rashid-Merem, the spokeswoman. The loans allow for modification of those requirements.

United Auto Workers officials representing GM, Chrysler and Ford Motor Co. employees will meet this week in Detroit to prepare for negotiations with the automakers on expense cuts, UAW President Ron Gettelfinger said in an interview yesterday with trade magazine Automotive News. Gettelfinger said last month that he will ask President- elect Barack Obama to amend some terms in the loan agreements because of "unfair conditions singling out workers" in the auto industry's biggest union.

The UAW has said it is willing to make some concessions relating to how workers are paid when there is no work for them and the timing of payments into a retiree health-care fund.

Chrysler, the No. 3 U.S. automaker, said Dec. 2 it would run out of cash early this year without the loans. Auburn Hills, Michigan-based Chrysler finished the third quarter with $6.1 billion and needs at least $3 billion to operate, Chief Executive Officer Robert Nardelli told Congress Nov. 18.

GM's losses have amounted to almost $73 billion since 2004. Chrysler says its first-half loss, the most recent information available, totalled $1.08 billion.

Chrysler is 80.1 percent owned by Cerberus Capital Management LP, which leads a group that owns 51 percent of GMAC.

Because it's closely held, Chrysler isn't required to release financial results, and the automaker said yesterday it still doesn't plan to disclose financial data even now that it has received federal aid. The terms of the loans require that the information be shared with the Treasury department.

If GM or Chrysler is unable to develop a viable business plan, the U.S. loan terms also allow the funds to be used as so- called debtor-in-possession funding so the automakers can keep operating in bankruptcy. Both companies have said bankruptcy would result in liquidation because they wouldn't be able to get such loans from private banks.

Bloomberg