Cracking the auto sales code
Fortune's Alex Taylor III explains how to untangle the results of September's auto sales report.
NEW YORK (Fortune) -- There will be more than the usual amount of number crunching going on after results are announced Tuesday for car and truck sales in September. The report will mark the end of the 2006 model year, so statisticians will be totaling up the winners and losers. Economic forecasters will be scrutinizing the numbers, too, to see how sales were impacted by the collapse in the real estate market. And industry analysts and insiders will be digging into the data to find if some current trends - like the impact of gasoline prices - are intact or headed for reversal.
Here are some other questions they will be trying to answer:
How did Ford and Chrysler weather the storm? September was a cruel month for both Detroit companies, as they slashed production schedules and forecast big losses. Some of their problems are product-based: too many pickup trucks and truck-based SUVs at a time when consumers are sensitive to gasoline prices.
Management gets a good chunk of the blame, too. At Ford (Charts), Bill Ford was overworked until he brought in Alan Mulally from Boeing as CEO. The execs at Chrysler (Charts) showed bad judgment by trying to wish away the company's growing inventory of unsold vehicles instead of cutting production. September's numbers won't be pretty. Merrill Lynch's John Murphy expects Chrysler sales to fall 13 percent vs. a year ago.
Will General Motors profit from their distress? GM (Charts), which couldn't do anything right six months ago, is benefiting from a lull in its run of bad news. Buyers of domestic cars tend to stay with domestic brands, so if Ford and Chrysler buyers are deserting, they will wind up at GM or cross over to imports.
Longer run, however, sustained progress may be difficult. Joe Barker, sales analyst for CSM/Worldwide in Detroit, says flatly, "The Big Three market share loss will be the Japanese and Korean gain. "
Have pickup truck sales stabilized? One of the dirty secrets of the Detroit Three is how dependent they are on full size pickups. At Ford, the F-series accounts for one fourth of the volume and an even greater percentage of the profit. Automakers expected pickups sales to remain strong this year despite high gasoline prices because so many of them are used for work, but that hasn't been the case. Standard and Poor's figures sales are off 14 percent so far because of a combination of slowing residential construction and high fuel costs. If falling gasoline prices don't spur a rebound soon, it is going to be a long, cold winter.
What's the outlook for hybrids? With gas prices gyrating, the anti-hybrid whispering campaign (spread by companies that don't sell hybrids) is increasing in intensity. So far, no trend is visible. Sales of the popular Toyota Prius were up in August but down for the year, while the stylish Honda Civic hybrid was down for the month but up for the year.
Part of the problem may be production capacity but there is enormous speculation about whether the appeal of these vehicles is economic (pay more for the hybrid but save on fuel costs), or psychic (do something good for the planet by reducing emissions) or a combination of both.
Has the industry permanently realigned? In July Toyota (Charts) outsold Ford and Honda outsold Chrysler. Toyota did it again in August but Honda (Charts) slipped back. Since Ford is light on new models this fall, and Toyota is pursuing an aggressive expansion campaign, you'd expect Toyota to hang on to second place. Chrysler, on the other hand, still has a slew of '07 models to unveil, so it should stay ahead of Honda for a while longer. Still the handwriting on the wall seems clear: the Big Three has been replaced by the Big Six (with Nissan (Charts) bringing up the rear).
The wild card in this equation may be GM. It turned in a stronger-than-expected performance in August and is expected to outperform Ford and Chrysler again in September. Insiders had figured that as GM backed away from incentives and fleet sales, its share would slip to 20 percent or 21 percent. Merrill Lynch's Murphy, though, sees it getting 26.5 percent of industry sales in September, which means it will be looking more robust as it talks merger with Renault/Nissan's Carlos Ghosn and money with activist shareholder Kirk Kerkorian.