Detroit's dreadful December

By BusinessWeek

The auto industry is on track to end the calendar year much as it has spent the rest of 2006: in a slump and observing the stark contrast between the ongoing success of Toyota and the still-plummeting sales and market share of Detroit's Big Three.

Preliminary figures released last week by analysts at Edmunds.com show the industry at large will be down 6.2% for the final month of 2006 -- to 1.38 million new vehicles sold -- compared with December 2005. Those results would translate into total industry sales for 2006 of 16.46 million units, down 2.8% from 16.93 million last year.

Standard & Poor's, meanwhile, estimates that 2006 auto sales will settle at around 16.6 million units. But Efraim Levy, a senior auto industry analyst at S&P, says next year's figures could drop even farther, to 16.4 million units. (Like BusinessWeek, S&P is a unit of The McGraw-Hill Cos. (MHP, news, msgs).

A rising star in Japan

It's been an exceptionally difficult year for domestic automakers, which have been occupied by high-profile labor buyouts and high-impact production cuts in response to declining sales and market share.

High fuel costs didn't help: According to the Energy Information Administration, gasoline peaked just above $3 a gallon nationally in late July and early August, knocking the wind out of the auto buying season.

The singular blazing bright spot is Toyota Motor (TM, news, msgs). The company is forging ahead to nab the No. 2 spot in the United States from Ford Motor (F, news, msgs) next summer. It could also top General Motors (GM, news, msgs) globally in 2007.

Toyota's sales for the last month of the year will probably be up by 11.4%, to 218,000 units, with market share increasing to 15.7%, up from 13.7% during the same period last year, according to Edmunds.com.

It's bleakest at Ford

But, for the most part, that's where the good automobile news ends. Other Japanese competitors are treading water. Nissan (NSANY, news, msgs) is expected to be down 2.6% from last year. And Honda (HMC, news, msgs), which uncharacteristically misread demand for Civics and the four-cylinder version of its Accord sedan, should match last year's numbers almost identically.

The combined domestic market share for Ford, GM and DaimlerChrysler's (DCX, news, msgs) Chrysler division is expected to fall from 56.6% last year to 54.3% in 2006. Worse yet, there's likely to be little relief ahead for the domestic industry.

The picture is, by far, the bleakest for Ford. The retirement of the Taurus, finalized earlier this year, will set the company back by as much as 500,000 units annually.

"Ford is suffering," says Jesse Toprak, executive director of industry analysis for Edmunds.com. "Going forward, it's facing a lack of new products and increased competition from General Motors and Toyota."

December is a traditionally strong month for domestic automakers because consumers tend to buy more sport utility vehicles and trucks, thanks, in part, to worsening weather as well as generous year-end deals. But this year, those sales haven't been able to buoy Ford's results as much as they did during the same period last year.

New trucks, SUVs and crossovers from General Motors are starting to squeeze Ford in precisely the markets where it makes the biggest profits. Toyota's upcoming redesign of the Tundra pickup is also likely to nibble at Ford's F-Series, which is still the best-selling truck in the United States, as well as Ford's most successful model. "Going into 2007, virtually everyone is going to grab market share from Ford," adds S&P's Levy.

One domestic bright spot

For its part, Chrysler is unlikely to fare much better for December. Toprak expects adjusted sales to be down 3.1%, to 177,000 units. Chrysler's U.S. sales market share is likely to hold steady, just under 13%, even as it suffers from a lack of product diversity -- too many heavy SUVs and just one car that gets over 30 miles per gallon until new models roll off the assembly line over the next year. "Given declines almost every month, 2006 was a year to forget for Chrysler," says Toprak.

The one domestic bright spot is General Motors, which is likely to hold its ground on the strength of new products.

Toprak expects GM's adjusted December sales to be off from last year by 1.5%, to 365,000 units. But market share is actually up. Edmunds.com predicts that figure will rise slightly, to 26.4%, up nearly 2% from the preceding month and up from 26.1% during the same period last year.

GM's new pickups, introduced in November, are on an uncharacteristically accelerated schedule. All the variants of the GMC Sierra and Chevrolet Silverado, including numerous body styles and engines, should be available within six months instead of the historical 18 months it has taken the company to prepare them. That could help GM further improve its market share figures next spring.

Levy and Toprak both see one positive development common to all three American automakers. "Domestic brands are willing to get rid of volume for the sake of profitability," says Levy. Toprak adds, "All the domestics now fully realize they can't go after market share alone without minding profitability."

Going into 2007, that leaves industry observers watching not for a sudden surge in new sales but, rather, milder gains: fewer incentives, lower transaction costs and less discounting -- all milestones on the road to domestic profitability.

This article was reported and written by Matt Vella for BusinessWeek.