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Late Surge in Car Sales Raises Hopes for 2010

Source: WSJ

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Posted on 04 Jan 2010

A December recovery in car sales is starting to ease fears that the historic plunge in the U.S. auto market in 2009 would repeat itself this year.

In recent days, sales have been brisk as auto makers stepped up incentive programs and took advantage of customers willing to buy without the aid of government rebates that spiked sales last summer.

"We are seeing an increase across the board," said Michelle Krebs, a senior analyst at Edmunds.com, a car-buying Web site. She cited higher-than-expected gains at BMW AG, Ford Motor Co., Honda Motor Co., Toyota Motor Co.'s Lexus, and General Motor Co.'s soon-to-be-shuttered Saturn and Pontiac brands.

Auto makers are set to release December sales data on Tuesday.

Ford has seen year-over-year gains in recent months along with a substantial increase in its retail market share. George Pipas, Ford's U.S. sales analyst, said consumer attitudes were "improving but fragile" as potential customers weigh a car purchase against continued uncertainty about their jobs and the value of their homes.

The December surge appears to be aided in part by GM's late-month dealer incentive program to clear out thousands of leftover vehicles from Saturn and Pontiac. GM gave dealers $7,000 for every new Saturn or Pontiac on their lots that is moved to rental-vehicle or service-vehicle fleets operated by the dealers, from which they could be sold to customers at a discount.

Many industry analysts now expect the seasonally adjusted annualized selling rate in December to be more than 11 million cars and trucks. Such a figure would mark the second-best month of 2009 after August, which received a major jolt from the "cash for clunkers" government rebate program. Stabilizing used-car prices, lower interest rates and brightening economic data have persuaded more consumers to shell out dollars for a big-ticket item like a new car, experts said. But an anemic housing market, stubbornly high unemployment and shaky consumer confidence continue to tamp down sales from making a fuller recovery.

Before the recent crash, a healthy U.S. auto market had been considered 16 million vehicles sold a year. The annualized monthly figure hit a low of 9.17 million last February before recovering in July and August to a peak of 14.09 million, thanks to the clunkers rebates. Sales tanked again in September to 9.22 million before rising again last fall.

According to an analysis of the car industry last week by Credit Suisse, a bright spot is that good products can still break through. Ford sold more Fusion sedans in the last three months of 2009 compared with the same period in 2008 despite a sharp decline in buyer incentives.

Two of Detroit's three car makers, GM and Chrysler Group LLC, emerged from government-backed bankruptcies last year with a cleaned-up balanced sheet but a rocky production schedule and new questions about their future product line-ups.

Chrysler, which left bankruptcy protection in June under the management control of Fiat SpA, performed the worst of any of the major auto makers. In the first 11 months of the year, Chrysler's sales of cars and light trucks fell 38% compared with the overall market's 24% decline.

Chrysler halted production at many factories in the middle of the year due to its bankruptcy, leaving it with severely limited inventory during the clunkers program. Supplier issues further crimped production, weighing on inventory even after the federal rebate program ended. From January through November, Chrysler's production fell 59%, according to wardsauto.com.

Chrysler Chief Executive Sergio Marchionne is trying to wean the company off expensive sales incentives and not to overproduce vehicles, as part of his five- year plan to return the company to profitability and repay the U.S. government for its loans.

But Ms. Krebs at Edmunds said Chrysler's sales to fleets such as car-rental concerns could be almost half of all its sales in December, an extraordinarily high percentage that could cost the company in lost retail sales, which generate higher prices and greater profit.

This fleet-sales strategy has come at the cost of short-term market share. In November, Chrysler lost about three percentage points of retail market share from the same month of 2008, as rivals such as Nissan Motor Co. and Hyundai Motor Co. gained share.

"When sales are announced Tuesday, it could be the first year since 1962 that Chrysler sold less than one million" vehicles, Ms. Krebs said.

Toyota, meanwhile, maintained market share for the first 11 months of the year despite undergoing its worst-ever safety recall, involving eight of its Lexus and Toyota-brand vehicles. The recall, announced in late September, involves concerns over sudden acceleration that the company attributed to floor mats getting stuck under the gas pedal.

Still, Toyota gained market share in November and has been steadily increasing output at its North American plants.


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