Downward Spiral In Autos: GM 49%, Ford 40%, Toyota 32%

The downward spiral in autos continues: GM, Ford Say January Sales Fell at Least 40%; Toyota Drops 32%.

General Motors Corp. and Ford Motor Co. said U.S. sales plummeted at least 40 percent in January and Toyota Motor Corp. dived by almost a third as the recession ravaged demand in the world’s biggest auto market.

The declines were 49 percent at GM, the largest U.S. automaker, and 40 percent at No. 2 Ford, according to statements released today. Toyota dropped 32 percent, Honda Motor Co. fell 28 percent and Nissan Motor Co. was down 30 percent.

The reports showed the toll of sinking confidence among car and truck buyers. GM, Ford and Chrysler LLC executives have all said that January deliveries may have tumbled to an annual rate of fewer than 10 million vehicles, after full-year sales averaged almost 17 million this decade before 2008.

“In this downward spiral, as a company it’s hard to plan your business and as a consumer it’s hard to change your sentiment,” said Joe Barker, an analyst at consulting firm CSM Worldwide Inc. in Northville, Michigan. “We’re all looking for some sense of stability in the sale rate.”

Plummeting sales hamper efforts by GM and Chrysler to pare labor costs, cut debt, trim dealers and idle plants to reduce cash use and make a case to keep $17.4 billion in loans from the U.S. Treasury that kept them from slipping into bankruptcy. The companies face a Feb. 17 federal deadline for a progress report.

January had 26 selling days, 1 more than a year earlier. Some automakers release results adjusted for sales days, meaning the totals will be about 4 percent lower than unadjusted numbers. Bloomberg uses unadjusted figures.

Toyota, Honda, Nissan Sales Slump

The Japanese auto manufacturers are all in a deep slump as Toyota Leads Drop in Japan Car Sales.

Toyota Motor Corp. and Honda Motor Co., Japan’s two largest carmakers, led the biggest drop in the country’s auto sales in 35 years last month as a recession cut wages and jobs and crippled consumer demand.

Sales of cars, trucks and buses fell 28 percent to 174,281 vehicles in January, excluding minicars, the Tokyo-based Japan Automobile Dealers Association said in a statement today. It was the biggest monthly drop since May 1974, the group said.

Honda slashed its full-year profit forecast 57 percent on Friday as sales plunge in Japan, the U.S. and Europe. Japan is headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December and unemployment surged.

Toyota, the world’s largest carmaker, sold 81,985 vehicles excluding its Lexus brand, down 22 percent, and sales at Honda dropped 31 percent to 22,087 units. Sales at Nissan Motor Co., Japan’s third-largest automaker, fell 31 percent to 30,786 vehicles last month.

The drop in domestic demand echoes a sales slump in the U.S., the most profitable market for Japan’s carmakers. In December, Toyota’s sales in the world’s largest car market dropped 37 percent. Nissan’s plunged 31 percent and Honda had a 35 percent drop.

GM Looking To Sell Truck Unit

In an effort to convince the "car czar" that GM can become profitable Union Says GM in Talks With Isuzu to Sell Truck Unit.

General Motors Corp., trying to prove its viability to the U.S. Treasury Department, is in talks to sell a division that produces work trucks to Isuzu Motors Ltd., a local union leader said.

The United Auto Workers has agreed to allow the transfer of the unit if talks are successful, said Local 598 Chairman Mark Hawkins, citing a UAW letter about the talks. The plant in Flint, Michigan, employs about 525 hourly workers and produced about 22,000 trucks last year, GM spokesman Tony Sapienza said. GM doesn’t provide revenue or profit figures for the unit.

The Detroit automaker is trying to cut labor and debt costs and sell assets to persuade Treasury that it will be viable and should keep $13.4 billion in pledged government loans GM says it needs to stay in business. Isuzu would keep making so-called medium-duty trucks at the factory for at least five more years under a plan being discussed, Hawkins said. GM spokeswoman Julie Gibson said no decision has been reached.

“We would rather have Isuzu than Navistar because Isuzu will keep the jobs in Flint,” Hawkins said, referring to an earlier plan to have Navistar International Corp. buy the unit.

Killing the entire Saturn line might have some meaning, but selling a division of a truck unit is more like attacking a glacier with an icepick.

GM, Chrysler Gain Momentum on Labor Cuts to Keep Aid

Bloomberg is reporting GM, Chrysler Gain Momentum on Labor Cuts to Keep Aid

General Motors Corp. and Chrysler LLC, propped up by $17.4 billion in U.S. loans, are speeding up efforts to pare union payrolls and meet a Feb. 17 deadline to justify keeping the money.

Buyouts are being offered to almost all their 91,600 United Auto Workers members to make room for new employees earning half of the $28 hourly wage of their predecessors. The UAW’s “jobs bank,” in which workers were paid when they didn’t have duties, ended at GM yesterday, a week after being halted at Chrysler.

“With everything that has happened over the past 24 hours, it’s almost desperation pace,” Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan, said yesterday. “When you offer all of your hourly workers a buyout, that’s certainly a sign of a troubled organization.”

Bringing in lower-cost employees and unwinding programs such as the jobs bank moved Detroit-based GM and Chrysler closer to two hurdles they must clear to retain the federal aid.

While working on labor costs, GM also is in talks to pare $27.5 billion in unsecured debt to about $9.2 billion in a swap for equity, and it plans to shut dealers and reduce obligations to a union retiree health fund by 50 percent to $10.2 billion in a separate equity swap.

GM fell 16 cents, or 5.5 percent, to $2.73 at 10:40 a.m. in New York Stock Exchange composite trading. GM’s 8.375 percent note due in July 2033 gained 0.25 cent to 15 cents on the dollar yesterday, yielding 55.7 percent, according to Trace, the bond- pricing service of the Financial Industry Regulatory Authority.

The GM program covers about 62,000 workers willing to retire or quit and consists of a $25,000 voucher to buy a new auto and $20,000 in cash, said a UAW official, who didn’t want to be identified because the details are private.

Chrysler is offering a $50,000 cash payment and a voucher for $25,000 to purchase a new vehicle for workers who are eligible to retire, said another UAW leader, who also didn’t want to be named because the specifics haven’t been announced. Workers not eligible for retirement are being offered $75,000 in cash plus a $25,000 voucher, the union leader said.

“Abolishing the job bank doesn’t do much,” Virag said. “It’s more of a sign, the significance of it rather than the actual losing of it.”

GM is indeed a deeply troubled organization, and that jobs bank program which paid laid off workers as much as 90% of their salary for doing nothing was certainly a significant piece of the problem, along with health care benefits, pay scales, and union work rules.

Bondholders do not want to give concessions, but the alternative might mean finding out what they would get in bankruptcy proceedings, arguably nothing. With long term bonds trading at 15 cents, perhaps some bond holders would just assume take their chances in a liquidation sale. However, I doubt it would come to that, at least initially. Restructuring is far more likely than liquidation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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