Hurricane Charley’s damaging path through Florida earlier this month and the growing ineffectiveness of sales incentives caused US car and trucks sales to slip in August, raising the likelihood of costly cuts in vehicle production, analysts told Reuters.
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Charley reportedly left many cars damaged on dealer forecourts when it hit one of the nation’s biggest markets in mid-August, and kept some consumers busy repairing their homes rather than shopping for new vehicles.
“Certainly a lot of the (Florida) consumers who were in the market to buy vehicles are now on hold,” Mark McCready, director of pricing strategy and market analysis with Internet car buying site CarsDirect.com, told Reuters. “Florida is a very populous state, it is going to have some effect.”
Several analysts reportedly said they expect industry sales for August to fall to a seasonally-adjusted annual rate of around 17.2 million, down from 17.9 million in August last year and unchanged from the rate in July. But a couple of others expect a far weaker annual sales rate of 16.7 million.
Auto companies are scheduled to report sales on September 1, the report noted.
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By GlobalDataReuters said Toyota and Nissan are again expected to post stronger results at the expense of Detroit’s General Motors Ford. GM’s sales are seen dropping between 6% and 9%, similar to estimates of a 5% to 9% drop for Ford. Chrysler could fare slightly better with sales flat to down as much as 4%, the analysts said.
Incentives in August rose about 4% from July’s levels, but automakers are having a tougher time convincing consumers to buy, Art Spinella, president of CNW Marketing Research, told the news agency.
“August sales are disappointing considering the high level of incentives, and more importantly, because of the need to clear out excess inventories (of unsold vehicles),” Merrill Lynch analyst John Casesa reportedly said in a research report to clients this week.
Reuters said automakers are also expected to set their forecasts for North American vehicle production for the fourth quarter when they report sales next Wednesday. GM chairman Rick Wagoner indicated last week that fourth-quarter production would be weaker than year-ago levels, just as third-quarter production was down 3.6% from a year ago.
GM and other automakers such as Ford with high inventories could cut production further than expected, but may resist excessive cuts, analysts told the news agency.
“Automakers will opt to raise incentives in the near-term and postpone any painful production cuts,” until next year, JP Morgan Chase analyst Himanshu Patel reportedly said in a research note.
However, according to Reuters, Goldman Sachs analyst Gary Lapidus was more pessimistic. He said GM’s fourth-quarter production could drop by 5% to 6%, and Ford could be down 7%, which would hurt their major auto parts suppliers Delphi and Visteon.
The news agency noted that production cuts directly impact earnings because the industry counts profits from vehicles when they are shipped to dealers rather then when they are sold to consumers.
“We believe GM and Ford will cut production as much as they can without jeopardising their (2004) earnings targets,” Lapidus told Reuters.
