04 April 2011

High Gas Prices Affect Car Sales

Take high gas prices and the crisis in Japan in an already struggling economy and you get lower automobile sales.

March light-vehicle deliveries may have run at a 12.9 million annual rate. While higher than a year ago, it’s less than the seasonally adjusted rate of 13.4 million in February.

The conflict in Libya helped push gas prices to the highest since September 2008, slowing truck, sport-utility vehicle sales and car shipping. Confidence among U.S. consumers fell more than forecast to a three- month low this month. 3.6 percent of Americans plan to buy a new auto in the next six months, down from 3.9 percent in February.

A lot of uncertainty in the geopolitical environment, with the crisis in Japan and Middle East unrest, affects consumers’ tendency to make big-ticket item purchases.

A 12.9 million rate this month would be an increase from the 11.7 million pace in March 2010, and all major automakers except Toyota Motor Corp. may report gains in deliveries from a year earlier.

Light-vehicle sales in 2010 rose to 11.6 million from a 27- year low in 2009. Deliveries still were 31 percent fewer than the 16.8 million annual average from 2000 to 2007.

Deliveries at Toyota may have slipped 3.6 percent from a year earlier as the world’s largest automaker offered smaller discounts. Toyota City, Japan-based Toyota boosted sales incentives 46 percent in March 2010 after it began record recalls earlier that year.

Sales may have gained 24 percent at Honda Motor Co., and Nissan Motor Co. deliveries may have increased 16 percent.

Global automakers may lose production of 585,000 vehicles this month after the March 11 Japan earthquake and tsunami damaged factories of manufacturers and their suppliers.

Toyota said last week it has lost output of more than 140,000 vehicles. Honda, based in Tokyo, said it had lost 46,600 vehicles, while Yokohama, Japan-based Nissan said it lost 42,000 units of production from March 14 to March 27.

GM, which closed its Shreveport Assembly plant in Louisiana the week of March 21 because of a Japan-related parts shortage, may report a 20 percent gain in March deliveries.

Ford Motor Co. may report a 13 percent increase for March. Ford’s increased sales of small cars such as the Fiesta and Focus may help the second-largest U.S. automaker outsell GM, which offered smaller discounts during the month.

The GM and Ford race will be really tight. GM came out really strong in the beginning of the year with incentives. When you do that, you’re going to pull ahead sales from later months.

Automakers may cut incentives and sales to fleet customers to conserve inventories as parts shortages threaten the loss of as much as 100,000 units of production in North America in the near term.

It feels like it’s going to be a little bit more of an impact than just a few vehicle shortages, however it is expected the lost output to be made up by the end of the year. The depletion of inventory of some key imported models could happen a lot faster than expected entering this month.

Chrysler Group LLC, based in Auburn Hills, Michigan, say sales rose 20 percent. Chrysler and Ford said last week they are restricting dealers’ orders on some vehicle colors after Merck KGaA, a producer of a paint pigment for automakers, lost access to its Japanese factory near a crippled nuclear reactor.

Higher gas prices may drive a shift in market share to cars from trucks and SUVs, according to J.D. Power. The average price of regular unleaded gasoline in the U.S. was $3.54 a gallon this month through March 29, according to AAA.

GM’s Chevrolet brand has doubled the share of sales it gets from vehicles with four-cylinder engines since 2007, to 46 percent of its retail deliveries this year. Ford, which set monthly records in February for sales of its Fiesta and Fusion cars, sees consumers changing buying patterns due to gas prices. There is a line that if a gallon of gas goes over, that may shift the market mentality.

For every $1 a gallon increase in U.S. gas prices, the more-profitable light-truck segment may lose 5 percentage points of market share to lower-margin cars. That would translate to a 56-cent decrease in annual earnings per share at GM, and a 15-cent drop at Ford.

GM has fallen 14 percent since Feb. 18, before intensifying violence in Libya sent crude oil prices to the highest in more than two years, to close at $31.55 yesterday in New York Stock Exchange composite trading. Ford has dropped 5.8 percent in that span and closed at $14.86 yesterday.

Estimates for car and light-truck sales in the U.S. Estimates for companies are a percentage change from March 2010, unadjusted for the difference in selling days. Forecasts for the seasonally adjusted annual rate, or SAAR, are in millions of vehicles.

Although estimates for car sales are trending down with the recent increase in gas prices and the effects of the crisis in Japan, automakers and car transport companies are preparing to make adjustments to keep themselves competitive.

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