Housing Weakness Weighs
On Auto Sector's Outlook
By MIKE SPECTOR and JOHN D. STOLL
July 26, 2007
The weakening U.S. housing market is dimming the outlook for auto makers for July and the rest of the year, with some industry analysts forecasting sales for cars and trucks at their lowest rate for the month in nearly a decade.
The housing market has already taken a toll on auto sales, as weak home values dull consumer appetite for big-ticket purchases. But as more economists predict continued housing weakness, auto sales could remain under pressure the rest of the year. (See related article1.)
Weak sales could put financial pressure on General Motors Corp., Ford Motor Co. and Chrysler Group, which soon will be purchased by private-equity firm Cerberus Capital Management LP.
But Toyota Motor Corp. and Honda Motor Co. may not escape, either. Though the Japan-based auto makers' sales have held steady amid market softness so far this year, a recent J.D. Power report predicted Toyota's sales falling slightly and Honda's sales dropping more than 5%, adjusted for fewer selling days this July than a year earlier.
Underscoring the auto sector's pain, AutoNation Inc., the nation's largest dealership chain by sales, will post second-quarter earnings today that are flat or slightly down, analysts predict. That's in large part because of housing weakness in California and Florida, where the company has significant exposure.
"With the slumping housing market, consumers have been less willing to purchase big-ticket items, including vehicles," says Mike Jackson, AutoNation's chief executive. "We expect to continue to see a challenging new-vehicle retail market as long as the housing market difficulties persist."
By all accounts, July's monthly sales results appear bleak, following a soft June. July's seasonal annual selling pace could sink to 15.9 million light vehicles, said Citigroup's Jon Rogers, in a research note. That would be the lowest annual pace for July since 1998.
"It would be unrealistic to expect sustainable improvement until the economic picture brightens," says George Pipas, Ford's top sales analyst, adding that auto sales this year have been "softer than expectations." With a week to go, Ford's July sales appear soft, he said. Ford reports second-quarter earnings today, with analysts surveyed by Thomson Financial expecting a loss of 35 cents a share.
Of special concern to Detroit's Big Three, slowing home construction damps demand for profitable pickup trucks. Total pickup sales are off 3.8% so far this year, according to Autodata Corp., but Detroit's sales are off 5.6%.
"Continued housing weakness will likely further weigh on truck demand," said Bear Stearns analyst Peter Nesvold.
Detroit's Big Three have tried to wean themselves of costly incentives like rebates and no-interest loans. But increased incentives spending by Toyota and Honda -- also efforts to cope with weakened demand -- have challenged that stance.
Toyota has put aggressive incentives on its new Tundra, which helped it more than double sales of the truck in June, catching GM off-guard. GM in turn raised incentives on its Silverado at the start of July. A Toyota spokesman says the company continues to use incentives strategically in response to market conditions but doesn't intend to raise incentives as an overall strategy.
"Coupled with Toyota's recent, successful incentive push with the Tundra, we think it will continue to challenge GM's pricing power in its key Silverado offering," Mr. Nesvold said.
As of June 30, GM had 107 days' supply of light trucks, or 30% more than it had in May and 40% higher than the entire industry, according to Autodata. Ford, meanwhile, has 86 days' worth of F-Series trucks and 68 days' of its Expedition SUV, while Toyota has 48 days' worth of its Tundra pickup.
On Auto Sector's Outlook
By MIKE SPECTOR and JOHN D. STOLL
July 26, 2007
The weakening U.S. housing market is dimming the outlook for auto makers for July and the rest of the year, with some industry analysts forecasting sales for cars and trucks at their lowest rate for the month in nearly a decade.
The housing market has already taken a toll on auto sales, as weak home values dull consumer appetite for big-ticket purchases. But as more economists predict continued housing weakness, auto sales could remain under pressure the rest of the year. (See related article1.)
Weak sales could put financial pressure on General Motors Corp., Ford Motor Co. and Chrysler Group, which soon will be purchased by private-equity firm Cerberus Capital Management LP.
But Toyota Motor Corp. and Honda Motor Co. may not escape, either. Though the Japan-based auto makers' sales have held steady amid market softness so far this year, a recent J.D. Power report predicted Toyota's sales falling slightly and Honda's sales dropping more than 5%, adjusted for fewer selling days this July than a year earlier.
Underscoring the auto sector's pain, AutoNation Inc., the nation's largest dealership chain by sales, will post second-quarter earnings today that are flat or slightly down, analysts predict. That's in large part because of housing weakness in California and Florida, where the company has significant exposure.
"With the slumping housing market, consumers have been less willing to purchase big-ticket items, including vehicles," says Mike Jackson, AutoNation's chief executive. "We expect to continue to see a challenging new-vehicle retail market as long as the housing market difficulties persist."
By all accounts, July's monthly sales results appear bleak, following a soft June. July's seasonal annual selling pace could sink to 15.9 million light vehicles, said Citigroup's Jon Rogers, in a research note. That would be the lowest annual pace for July since 1998.
"It would be unrealistic to expect sustainable improvement until the economic picture brightens," says George Pipas, Ford's top sales analyst, adding that auto sales this year have been "softer than expectations." With a week to go, Ford's July sales appear soft, he said. Ford reports second-quarter earnings today, with analysts surveyed by Thomson Financial expecting a loss of 35 cents a share.
Of special concern to Detroit's Big Three, slowing home construction damps demand for profitable pickup trucks. Total pickup sales are off 3.8% so far this year, according to Autodata Corp., but Detroit's sales are off 5.6%.
"Continued housing weakness will likely further weigh on truck demand," said Bear Stearns analyst Peter Nesvold.
Detroit's Big Three have tried to wean themselves of costly incentives like rebates and no-interest loans. But increased incentives spending by Toyota and Honda -- also efforts to cope with weakened demand -- have challenged that stance.
Toyota has put aggressive incentives on its new Tundra, which helped it more than double sales of the truck in June, catching GM off-guard. GM in turn raised incentives on its Silverado at the start of July. A Toyota spokesman says the company continues to use incentives strategically in response to market conditions but doesn't intend to raise incentives as an overall strategy.
"Coupled with Toyota's recent, successful incentive push with the Tundra, we think it will continue to challenge GM's pricing power in its key Silverado offering," Mr. Nesvold said.
As of June 30, GM had 107 days' supply of light trucks, or 30% more than it had in May and 40% higher than the entire industry, according to Autodata. Ford, meanwhile, has 86 days' worth of F-Series trucks and 68 days' of its Expedition SUV, while Toyota has 48 days' worth of its Tundra pickup.
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