WASHINGTON—September estimates for car sales by the Big Three automakers General Motors Corp. (GM), Chrysler LLC and Ford Motor Company indicate a decrease in sales from the prior month. Chrysler and Ford sold about 10 percent less cars in September than in August, while GM sold 16 percent fewer cars, according to Edmunds, Inc., an automotive information company.
Just like housing sales, auto sales are taking a hit as credit becomes harder to obtain due to the recent subprime loan crisis. Experts suggest that it has become harder for people with a tainted or limited borrowing credit history to get a loan when shopping for a new or used car.
It is not that the auto industry did not expect bad news for 2007. CarTest, a Canada- based consumer auto industry research website, predicted in late 2006 that there will be at least 650,000 fewer auto sales in the U.S. in 2007. CarTest predicted that the Big Three will feel the downturn in sales more than any foreign automaker selling cars in the United States.
Surviving Labor Negotiations
Besides slumping sales, GM had already experienced dragged-out negotiations and a short-lived strike by the United Auto Workers (UAW) union over health care and other benefits that appear to have been amiably resolved. GM shares did not take a nosedive, as a long strike would have brought the struggling automaker.
Considering GM's average share price was $18.31 at of the end of 2005—when it came close to filing for bankruptcy—GM should be given kudos for a great turn around so far.
"This week's UAW strike doesn't appear to have hurt GM's sales," said Michelle Krebs, editor at Edmunds, in a press release. "The 1998 strike (against GM), which lasted for 54 days, was debilitating to GM. The automaker lost money and market share—share it never retained."
According to the agreement, the UAW will be the caretaker of a fund, named the Voluntary Employees Beneficiary Association (VEBA), for managing healthcare-related costs for GM's workers. GM will contribute close to $21 billion to the fund, including a $4.4 billion note convertible into GM shares. Those shares, if converted at face value, could make UAW a 17 percent shareholder of GM—which is a good strategy, as the UAW's wellbeing is now directly tied to GM's wellbeing.
GM was the first among the Big Three to find itself in a showdown with the UAW. The question is, who is going to face negotiations next?
"GM was picked as the first target [by UAW] because it is probably the healthiest financially at the moment. This is not to say that this makes them all that healthy," said John Paul MacDuffie, professor at University of Pennsylvania's Wharton Business School, in an interview published by Knowledge@Wharton (KW), titled "The U.S. Auto Industry: Dangerous Curves Ahead?"
Foreign Automakers on the Prowl
While the Big Three are losing market share, some foreign carmakers are enjoying increased sales. Edmunds predicts that Honda Motor Co., Ltd's sales will be up almost 18 percent in September over the prior month.
Nissan Motors North America and Toyota were settled with a sales downturn. Edmunds predicts that both Japanese car makers would sell around 9 percent fewer cars in September than in August.
"We expect to see a year-over-year decline in Toyota sales for the third month in a row," said Michelle Krebs, senior editor at Edmunds. She suggested that Toyota "couldn't possibly keep up the dramatic momentum they had been enjoying."
India Dives Into U.S. Auto Market
Mumbai, India-based Tata Motors Limited is trying to get its hands on Ford's luxury brands Jaguar and Land Rover, which it put up for sale a year ago.
Jaguar is in financial difficulty. On the other hand, Land Rover's popularity is growing and sales are doing well. Ford is looking for a buyer for these brands because of its need for cash, suggests MacDuffie.
Tata wants to get a foothold in the American market, and there are few better ways than to buy established luxury brands. Also Tata, being in "a former British colony, there might be a certain sense of pride in acquiring the 'Jewel in the Crown' so to speak," speculated MacDuffie.
China Not Quite Ready
According to KW, there are 120 car producers in China, selling over six million cars in in 2006.
The country's five major automakers are Shanghai Automotive Industrial Corp., Chang'an Motors, Chery Automobile Pty Ltd., First Automotive Works and Dongfeng Motor Corporation.
For China to break into the U.S. market and be accepted by the American consumer, it will have to overcome some major hurdles. KW suggested in a 2006 article, "Can China Gear Up to Sell its Cars to U.S. Consumers?," that it will take at least another 10 years or longer "to overcome a long list of obstacles, including poor quality, high costs, weak design and a lack of distribution networks."
The greatest obstacle to China is Japanese and Korean auto manufacturers. At the moment, they are so far ahead in the game of selling cars that China doesn't stand a chance.
Feeds