02 Jan 08 GM, Ford December Declines May End Lowest Sales Year in Decade

General Motors Corp. and Ford Motor Co. will probably say December U.S. auto sales fell as consumers reined in spending, ending a year with the lowest demand for cars and trucks in a decade.

Deliveries dropped about 5.6 percent at GM, 7.8 percent at Ford and 7.9 percent at Chrysler LLC, based on the average estimates of six analysts in a Bloomberg survey before tomorrow’s reports. Smaller declines at Japanese rivals such as Toyota Motor Corp., which bumped Ford from the No. 2 spot at midyear, may help them gain market share over Detroit’s money- losing trio.

Americans bought about 16.1 million cars and trucks for the year, the least since 1998, with year-end gasoline prices exceeding $3 a gallon for the first time and consumer confidence at a two-year low. Housing starts, one barometer for sales of profitable pickup trucks, are in the deepest slump in 16 years.

“The housing market and credit crunch are really affecting consumers,” said Efraim Levy, an equity analyst with Standard & Poor’s in New York and one of the forecasters predicting 2007 sales of 16.1 million. “It’s definitely been a weak year.”

All three of Japan’s biggest automakers will probably report declines for December while collectively gaining market share, said Jesse Toprak, an analyst with Edmunds.com in Santa Monica, California. He predicts declines of 2.9 percent for Toyota, 0.8 percent at Nissan Motor Co. and 1.4 percent for Honda Motor Co.

Ninth Monthly Drop

A monthly decline in December would be the industry’s ninth for 2007. Analysts such as Levy and Goldman Sachs’ Robert Barry expect annual U.S. sales to decline by about 500,000 vehicles from 2006.

Sales of 16.1 million vehicles for the year would be the lowest total since 15.6 million vehicles were sold in 1998. The industry set a record in 2000 with 17.4 million sales.

The industry’s annualized sales rate for December probably fell to 15.9 million cars and light trucks, the third-lowest of the year, according to the average estimate of six analysts and 24 economists surveyed by Bloomberg.

Forecasts for an even tougher 2008 have helped trigger stock-price declines of about 42 percent at GM and 28 percent at Ford from their October highs.

“Gas prices and the housing market will continue to determine what type of vehicle, and how many of them, consumers will purchase in 2008,” Toprak said in a Dec. 27 note. He predicts light vehicle sales will fall to 15.9 million in 2008.

The average price of a gallon of gasoline rose 31 percent for the year to $3.05 on Dec. 30, according to the American Automobile Association. The Reuters/University of Michigan final index of consumer sentiment for December declined to 75.5, the lowest since October 2005.

GM Slide

GM’s sales dropped an estimated 7 percent last month even as the Detroit-based automaker increased incentives on full-size pickups such as the Chevrolet Silverado, Peter Nesvold, an analyst with Bear Stearns in New York, said in a Dec. 24 note.

Redesigned cars such as the Chevy Malibu and Cadillac CTS, while selling well, weren’t enough to “move the needle,” he said.

GM, which lost its lead as the world’s largest automaker to Toyota in the year’s first half before regaining the title, had a 6.1 percent U.S. sales decline through November. It would need a 68 percent sales jump over December 2006 results to avoid its eighth consecutive annual U.S. sales decline, according to Autodata Corp. of Woodcliff Lake, New Jersey.

Dearborn, Michigan-based Ford probably won’t be able to repeat its surprise November increase, which ended a streak of 12 monthly drops, analysts said. The automaker’s sales dropped an estimated 3 percent in December, Goldman’s Barry estimated.

Ford Trucks

“A weak product cadence and aggressive competitor discounts” for pickup trucks probably hurt Ford’s sales to individual customers, Barry said in a Dec. 21 note. Ford depends on trucks for about two-thirds of its U.S. vehicle sales. The F- Series pickup, the nation’s top-selling vehicle, had a 12 percent sales drop in the year’s first 11 months.

Ford, which now ranks No. 3 in the U.S. behind GM and Toyota, would need to more than double December sales to prevent its seventh-straight annual U.S. decline.

Auburn Hills, Michigan-based Chrysler, the fourth-largest automaker for U.S. sales, would need a 35 percent boost from the year-earlier December to equal the 2.14 million cars and light trucks it sold for all of 2006. Its sales dropped for six straight months through November.

Chrysler’s December sales more likely fell 6 percent, even while the company remained “aggressive with incentives,” Richard Kwas, a Wachovia Capital Markets analyst in Baltimore, wrote on Dec. 27.

He expects a 5 percent contraction in truck deliveries for Chrysler, which depends on such vehicles for about 75 percent of its U.S. total, more than any other automaker.

Stocks and Bonds

Ford rose 3 cents to $6.73 on Dec. 31 in New York Stock Exchange composite trading; its shares lost 10 percent in 2007. GM fell 41 cents to $24.89 and declined 19 percent for the year. Toyota’s American depositary receipts fell 43 cents to $106.17; it’s down 21 percent for the year.

GM’s 8.375 percent note due July 2033 was unchanged on Dec. 31 at 80.75 cents on the dollar, yielding 10.57 percent, according to Trace, the NASD’s bond-price reporting service. Ford’s 7.45 percent note due July 2031 rose 0.25 cent to 74.75 cents on the dollar, yielding 10.33 percent.

Credit-default swaps on GM debt dropped 3 basis points on Dec. 31 to 727 basis points, according to CMA Datavision in New York. Ford’s increased 3 basis points to 787 basis points.

The contracts are designed to protect bondholders against default. A decline in the price indicates a rise in the perception of a company’s credit quality.

The following table provides estimates for car and light- truck sales in the U.S. Estimates for companies are percentage changes from December 2006. Forecasts for the seasonally adjusted annual rate, or SAAR, are in millions of vehicles.

The SAAR average is based on forecasts from six analysts and a survey of 24 economists. The analysts’ estimates are based on daily selling rates. December had 26 selling days, the same as December 2006.