Companies struggle in a changing industry -- one with a huge revenue drop

Dealers are offering big discounts on pickups.
After an awful April, nearly every industry forecaster now agrees: U.S. sales will plummet by about 1 million units in 2008 — the first time sales have tumbled that much in one year since 1991.

But it's not just the million units that matters. It's the mix.

High-profit pickups and SUVs account for most of the lost volume. Big trucks have been in a tailspin for months, but with record high fuel prices, the rate of decline has hit warp speed.

The full-sized pickup segment is tracking at about 1.9 million units, down from 2.5 million three years ago, said Toyota Division boss Bob Carter. Last week, General Motors cut full-sized truck production in North America by 138,000 units for the remainder of the year, including 88,000 full-size pickups. At several dealerships in California, you can get a $13,000 discount on a Dodge Ram.

Cash rebates industrywide had been falling for three years, but they rose sharply in April — returning to 2005 levels, according to Power Information Network.

General Motors, Ford Motor Co. and Toyota have pared forecasts for U.S. light-vehicle sales to the low 15 million range. But it's a changed industry — not just smaller, but poorer.

“We're in a lot of whitewater in the industry right now,” said Mark Fields, Ford's president of the Americas.

The most alarming news in GM's big earnings decline, announced last week: a $3.6 billion drop in North American automotive revenue. Even Ford Motor's surprise $100 million first-quarter profit masked a $1.4 billion falloff in North American automotive revenue.

“The challenge for the industry is from a revenue standpoint,” said Mark LaNeve, GM's vice president of vehicle sales, service and marketing. “Revenue has disappeared from the truck market declines, higher commodity prices, meeting CAFE and other regulations. So prices are going to have to come up over time, and I believe we're already seeing it. We're seeing similar moves from our competition.”

April sales declined 6.8 percent. And for the first time in four years, the industry's average retail transaction price ($27,238 through April 27) declined compared with the same month a year earlier.

Asia, Europe brands suffer

The doldrums are throwing turnarounds off track and undercutting even Asian and European brands that had been cruising. Toyota Motor Sales said it suffered a fifth straight monthly sales decline when compared with the same number of selling days as April 2007.

When April 2008's two extra selling days are counted, Toyota sales were up 3.4 percent.

April marked the first year-to-year monthly sales decline for the redesigned Tundra pickup since its launch in February 2007. So while Toyota's Prius has less than four days' supply, Toyota is carrying more than an 80-day stock of Tundras, Carter said.

Toyota dealers are pulling out all the stops to promote the big truck.

Used-car prices are slumping as more vehicles come off lease. One example: Used BMW cars and trucks as a brand are bringing in about $3,000 less than they were projected to be worth three years ago. BMW AG said last week that it took a $372 million charge to reflect falling U.S. sale prices.

April's biggest loser: Chrysler, with sales down 23.5 percent. Last week Daimler AG slashed the book value of its 19.9 percent stake in Chrysler by nearly two-thirds to reflect ongoing losses at its former U.S. unit.

To some overseas observers, the U.S. market looks feeble. Nissan Motor Co. CEO Carlos Ghosn said last week that the U.S. car market won't recover before 2011.

But there are voices of optimism at home.

“We still think there will be a recovery in the second half,” said Mike DiGiovanni, GM's executive director of global market and industry analysis.

“Some of the liquidity tightness is out there, but we don't see a systemic crunch in the credit area. All of these are positive signs. We think we're in the trough of the downturn in the second quarter.” 

You can reach Richard Truett at

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