- The Washington Times - Monday, October 3, 2005

Sales by Detroit automakers nosedived last month on plummeting demand for sport utility vehicles, while gasoline prices higher than $3 a gallon lifted Asian automakers’ share of the U.S. market near record levels.

In the latest fallout from high energy prices triggered by two Gulf Coast hurricanes, General Motors Corp. (GM) yesterday reported its sales plunged 24 percent, led by a 30 percent drop in sales of SUVs and light trucks.

Ford Motor Co. reported a 19.9 percent drop in sales, including a 28 percent fall in SUVs. Sales of Ford’s heaviest models — the Expedition and Explorer — and GM’s heaviest model, the Tahoe, collapsed by 61 percent, 58 percent and 56 percent, respectively, despite the offer of employee-discount pricing.

Sales jumped 10 percent at Toyota Motor Corp., by contrast, led by demand for its gas-electric hybrid Prius and Highlander models. Sales also rose 16 percent at Nissan Motor Co., and 12 percent at Honda Motor Co., which also offers a roster of fuel-saving hybrids.

The Asian companies’ share of the U.S. market hit a record of 39 percent in August and held near that level last month.

The shift to the more fuel-efficient cars offered by Asian automakers reflects the impact of record-high gasoline prices, which yesterday again were closing in on the $3 mark on average nationwide for a gallon of regular.

It also showed the waning appeal of employee-price discounts at GM and Ford, which lifted sales in June and July but failed to prevent a disaster last month, analysts said.

“The hangover has already started” after a car-buying bonanza prompted by the discounts in June and July, said Argus Research analyst Kevin Tynan. “You have gasoline prices at $3. It’s pushing the shift to smaller, more fuel-efficient” vehicles.

GM introduced employee pricing for all customers in June to reverse a sales decline through the first five months of the year. The company posted a 47 percent increase in sales that month and a 15 percent gain in July before a 13 percent decline in August that accelerated last month.

GM’s employee-discount program ended last Friday. Ford and Chrysler, which came after GM’s offer in July, ended their discounts yesterday.

DaimlerChrysler AG, based in Stuttgart, Germany, said Chrysler sales rose 4 percent last month, capping an eighth consecutive quarter of increases.

The turn toward buying more fuel-efficient cars came as the Bush administration continued its campaign yesterday urging more fuel conservation by drivers and homeowners.

“The need to use energy more wisely is particularly acute this year because of the higher prices that we expect to see” in winter heating bills as well as pump prices, said Energy Secretary Samuel W. Bodman.

While gasoline prices have risen 50 percent over the past year, the cost of winter fuels — heating oil and natural gas — will soar from 34 percent to 71 percent compared with last year as a result of the destruction of oil and gas facilities by the hurricanes, the department estimates.

Surveys since September show that consumers are responding in two ways to record-high gas prices: cutting back on driving and discretionary purchases where they can, and investing in more fuel-efficient technologies.

While the pullback in spending poses a drag on the economy, analysts say the move to buy more fuel-efficient cars helps the economy and will yield long-run benefits for consumers.

But the trend bodes ill for GM and Ford, which have made most of their sales and profits in recent years on gas-guzzling SUVs and trucks. Both companies are ailing financially, and some analysts predict that one or both will sink into bankruptcy.

Standard & Poor’s Corp. yesterday put both companies under review for a possible downgrade of their credit ratings, which already are at junk levels.

“We had a very challenging month,” GM sales analyst Paul Ballew said. “We had some pockets of strength, but once again with the number of head winds for the month, we were down.”

All of the car companies were hit by damage and closures of dealerships on the Gulf Coast last month, with hundreds of showrooms temporarily shut down and thousands of cars damaged or destroyed on dealers’ lots.

Consumers aren’t abandoning SUVs entirely, but for the past two years have been favoring their smaller cousins, the crossover utility vehicles that are built on a car chassis but look like SUVs.

“The wave of the future is the crossover SUV,” said George Magliano, director of auto-industry research at Global Insight. “They offer a more comfortable ride, and they get better gas mileage.”

While U.S. car companies suffered a blow from the hurricanes and high gas prices, U.S. manufacturers and construction companies received a boost last month as rebuilding got under way on the Gulf Coast.

An index of manufacturing activity jumped as new orders for machinery and tools poured in. Even before the hurricanes, construction spending rose to a record rate in August.

The prices businesses paid for raw materials also skyrocketed, however, prompting concerns about inflation.

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