As widely expected, General Motors and Ford have started 2005 with weak sales and reduced production volumes - but the numbers have come in worse than expected.

GM in particular had very poor February sales - 17% fewer new car sales and 8.5% fewer light trucks.

The month saw the market leader's share of the light vehicle market fall to just 25%.

GM's production output is expected to be just 1.18 million light vehicles in the first quarter of 2005, compared with 1.4 million in the first quarter of 2004, despite lower production to adjust stock in the final quarter of 2004.

GM has said it will cut production by 45,000 additional vehicles in the first quarter and roughly 10%, or 139,000 vehicles, in the second quarter to lower stocks.

Ford plans to cut production by an additional 10,000 vehicles in the first and second quarters of the year.

General Motors has announced it will close another plant in the US (Lansing), and expects to be only marginally profitable in the first quarter - with a significant minus from selling cars offset by the still highly profitable financing business.

"Considering the kind of inventory levels that some manufacturers have been facing for months, it should come as little surprise that production was going to have to come down at some point" said Ryan Robinson, forecast manager at PricewaterhouseCoopers AUTOFACTS.

He said that the cuts planned for Q2 by some manufacturers will certainly have a negative impact on the year as a whole.

However Robinson says that it is an open question whether the companies affected can successfully engineer a soft landing in terms and extract higher margins from a lower overall volume of vehicles.

"Traditionally, the easiest way you do that is through new products but in the past year it has been a bit of a mixed bag in terms of what has been hitting in the marketplace and what is being left in the showroom" he says.

Product development challenge

But one of General Motor's core problems is its relatively unexciting product mix and CEO Rick Wagoner has announced a reorganisation of new model development.

But while the change is a sign that the company recognizes its core problems, it's an open question whether it will really lead to a strong product-led recovery for GM.

The changes effected at Cadillac in the last few years suggest that it is possible for a product-led revival to overcome a politicised and financially-driven culture at the group - but it requires a big shift in mindset.

It can be done: with the support of its renewed car programme, Chrysler continued to outperform its Big Three peers with sales up 7.5% and a market share of 14.8% in February.

DaimlerChrysler's Dodge Caliber concept car at the Geneva Motor Show showed that the company has learnt to deliver more interesting vehicles. The concept car is derived from the new medium car platform from the joint venture between Chrysler and Mitsubishi.

The Caliber looks fresh and exciting, and is likely to cement Chrysler's product-led revival.

The bad news at GM and Ford made a tough week for suppliers even tougher.

Financial analysts lowered their earnings estimates for several auto suppliers. Rod Lache at Deutsche Bank said that February sales trends "further cloud the outlook for suppliers".

Deutsche Bank had downgraded suppliers in December based on concerns about demand.

Delphi had already said in December that it planned to cut 8,500 jobs during 2005 year as part of its ongoing restructuring.

Lear announced a significant downward revision to its Q1 outlook and Magna took their 2005 revenue and margin expectations down, Lache noted.

In addition to production cuts, suppliers have been pinched by the high cost of steel and automakers' demands for price cuts, and growing signs of a slowing of the Chinese auto market growth has removed one of the few positive notes in the outlook.