Industry straps in for rough ride

Whether this is a recession or not, automakers and dealers are girding for a continued pounding.

February sales declined for four of the Big 6 automakers, and executives say it may be months before the market stabilizes.

How bad will it get? Estimates vary. J.D. Power and Associates predicts U.S. light-vehicle sales will tumble this year to just 14.9 million. Meanwhile, the National Automobile Dealers Association projects sales of 15.7 million units, down from 16.2 million in 2007.

To stay afloat, automakers are cutting production, laying off workers and asking suppliers to take price cuts. Here's what major automakers are doing to cut costs:

-- Ford is offering buyouts to 8,000 hourly employees.

-- Nissan is putting two U.S. assembly plants on a four-day work week to cut vehicle inventories.

-- Chrysler cut five production shifts and announced up to 10,000 job cuts.

-- Toyota is trimming production of its Tundra pickup and Sequoia SUV.

-- General Motors has delayed some capital expenditures until later this year. It, too, is offering worker buyouts.

To be sure, there are glimmers of hope. The Federal Reserve's rate cuts have reduced dealerships' floorplan costs. And dealers, such as Robert Allen, president of Robert Allen Auto Group Inc., say the credit crunch has not hampered their ability to line up car loans for customers.

In fact, some banks are being more aggressive with auto loans because they're not getting as much mortgage business, says Allen, who owns a three-store chain in Pocatello, Idaho. "They've still got to loan money, just like we've still got to sell cars," he says.

But the continued availability of loans has not been enough to prop up the market, and automakers are ratcheting down their expectations.

"No matter what, we'll keep doing what we have to do to structure ourselves to the lower demand," Ford CEO Alan Mulally told analysts last week during the New York auto show.

Ford's signup period for buyouts ended last week. While the company hasn't released results, news reports suggest that only about 5,000 hourly workers accepted Ford's offer. Mulally says he's prepared to pursue additional cost-cutting steps, if necessary.

While Mulally declined to specify those steps, Ford personnel chief Joe Laymon told Automotive News last week that Ford would consider additional white-collar job cuts if hourly buyouts don't go deep enough.

The downturn has led automakers to seek small cuts as well as big ones. For example, Chrysler announced plans on March 8 to close its 20-employee Pacifica design center in Carlsbad, Calif.

Four days later, Chrysler said it would sell its engine plant in Curitiba, Brazil, to Fiat Powertrain Technologies. But the ax began swinging last November, when Chrysler said it would eliminate shifts at five plants and reduce the hourly work force by 8,500 to 10,000 jobs.

General Motors has saved $500 million through cost cuts and will seek further reductions in manufacturing, commercial and administrative expenditures, says Ray Young, GM's CFO.

GM has more cash than Ford or Chrysler to weather a recession. Nevertheless, GM is taking steps to conserve funds. The company has delayed some nonproduct capital projects to the second half of the year. "If the market doesn't return, we will defer that further into the future," Young says.

Even the import brands, which have been gaining market share, are cutting back.

Last week, Nissan confirmed that starting next month its assembly plant in Smyrna, Tenn., will operate just four days a week to reduce inventories. Its Canton, Miss., plant's truck line went to a four-day week on March 17. The short schedules will last through May, trimming about 4,500 vehicles from its production plan.

Nissan also canceled two days of work from this month's schedule at its Smyrna, Tenn., plant. That eliminated an additional 2,900 vehicles.

A week earlier, Toyota said it would trim Tundra pickup and Sequoia SUV production, as well as V-8 engine output in Huntsville, Ala. Toyota declined to say how many units will be eliminated.

As industry sales tank — and as automakers trim production — the big dealership groups are relying more heavily on used-car sales. For example, Lithia Motors Inc. has opened two used-car stores in Texas and one in Colorado.

Meanwhile, AutoNation is slowing down the acquisition of new stores. And Asbury Automotive Group is reducing advertising, cutting staff and trimming inventories.

Smaller dealership groups are taking similar cost-cutting steps as bargain-hunting consumers hold out for the best possible deal.

"New-car buyers are shopping much more," said Chris Saraceno, vice president of Kelly Management Corp., which operates 10 dealerships in Pennsylvania and Florida. "I think they sense that some of the dealers — especially the domestics — are desperate and they're looking for deals."

To compensate, dealers such as Saraceno are selling more used cars. His stores have raised their closing ratio by selling certified used vehicles to consumers who had started out shopping for new cars.

To reduce expenses, Saraceno also has kept a smaller vehicle inventory. "We've got to work harder, and maybe with less people than we have in the past," he said. "But we look at it as an opportunity. When things are tough, the well-organized and well-expensed dealers will grow." 

Lindsay Chappell, Jamie LaReau, Bradford Wernle, Amy Wilson and April Wortham contributed to this report