Crushed under the weight of declining consumer confidence, rising gas prices, lower incentives and shrinking inventories of Japanese-made vehicles car sales took a sharp tumble in May, though some makers, including long-struggling Chrysler, managed to buck the downturn. It was the first significant downturn for the industry since the American market began to recover in late 2009.
The biggest losers were Japanese makers, like Toyota, who expect to continue being hammered for months by the impact of the March 11 earthquake and tsunami , which nearly shut that country’s auto industry down for a month. Some key models, such as the new 2012 Honda Civic aren’t expected to be back in full supply until late this year.
But General Motors also saw an unexpected dip in demand reflecting sluggish sales of its big trucks even as consumers rushed to buy the maker’s new and more fuel-efficient small cars.
Overall, analysts described May as a disconcerting start to what is normally the annual spring buying season. Sales had, in fact, been rising steadily all year, reaching a seasonally-adjusted annual sales rate, or SAAR, of 13 million in April. But for May the annualized rate dipped to just 12 million.
Toyota was once again one of the biggest losers, sales dropping 28% for the month. The decline was all the more disturbing for the giant maker because May 2010 was itself a weak month, the company last year attempting to dig out from under recalls that briefly forced a shutdown of many of Toyota’s North American plants and then choked service bays as dealers raced to make repairs.
“It appears the market took a little bit of a breather,” said Bob Carter, Toyota Motor Sales vice president, adding he believes the demand for new vehicles will continue to expand during the second half of 2011.
Toyota may have over-reacted to the loss of production touched off by the March 11 disaster, industry analysts suggest. With many key models in short supply, the maker trimmed its overall incentives by 26.6% for the month, from an average $1,730 a vehicle in April to just $1,269.
Toyota “had gone dark” in terms of marketing in the last several weeks because of uncertain vehicle supplies, acknowledged Carter.
Now, with Toyota ramping up production ahead of its initial recovery plan, it has also been expanding those givebacks, as well, which could help it make up some losses in June, said Carter, especially on key models ranging from Tundra and Camry to the Highlander and Corolla. Now it is prepared to recover some of the ground last over the last three months, he said.
Japan’s second-largest automaker Nissan, which saw sales drop 9%, came out relatively unscathed. Honda however, was also slammed by the production shortages, especially with several key models in critically short supply. Sales of the Accord were down 34.5%, while demand for the Civic was off 30.2%. Leading up to the March 11 disaster, which coincided with the launch of the 2012 model, demand for the Civic had been on a sharp climb. Overall, Honda was off 16.1%.
“May sales are on par with what we expected due to the lingering effects of parts and production shortages resulting from the devastating March 11 earthquake in Japan,” said John Mendel, executive vice president of sales for American Honda. “We are confident that sales will rebound as our North American plants reach 100% production capacity for most models in August.”
Countering the downward trend was Chrysler, which reported a 10% increase for May.
“Chrysler Group just posted its 14th consecutive month of year-over-year sales gains, confirmation that our 2011 models continue to resonate with consumers,” said Fred Diaz, President and CEO – Ram Truck Brand and Lead Executive for U.S. Sales.
The Detroit maker’s good news came not only from newer, more fuel-efficient models like the 2011 Chrysler 200, but even on the truck side, where big pickups and Jeep SUVs also gained sales, “despite high, fluctuating gas prices,” Diaz pointedly noted.
GM reported a 1% drop in overall sales but a 9% increase in retail sales compared to May 2010. Retail sales for GM’s brands were again propelled by the company’s lineup of fuel-efficient passenger cars and crossovers. The maker has discounted its declining fleet sales insisting it has consciously chosen to focus on more profitable sales to consumers.
“Customers continue to demand better fuel economy and our commitment to produce high-quality, fuel-efficient vehicles is paying off,” said Don Johnson, vice president, U.S. Sales Operations. “We expect that fuel prices will continue to be volatile and we’re prepared to continue meeting the needs of an ever-changing market.”
For the month, Chevrolet Cruze had its best retail sales since its launch as Chevrolet dealers reported 18,996 retail deliveries.
The Chevrolet Volt plug-in hybrid, however, managed to generate just 481 sales, less than half the 1,141Leaf battery cars sold by rival Nissan. Leaf numbers doubled for the month, in fact, as the maker diverted some resources to boost production despite the Japanese parts shortages.
But GM expects that Volt numbers should begin catching up later this summer as the maker triples production to an anticipated 16,000 for all of 2011.
Ford, which has long counted on trucks like its big F-150 pickup, saw year-over-year sales go flat for May. Nonetheless, consumer demand remained strong in May for Ford’s new fuel-efficient vehicles and powertrains, bringing significant year-over-year sales gains for small cars – as well as the completely redesigned 2011 Explorer.
“Customers increasingly are demanding new products that deliver compelling fuel economy,” said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service.
“Ford’s new fuel-efficient products and powertrains arrived at the right time – just as fuel efficiency became even more of a consideration among consumers,” Czubay said, despite signs the economy had softened in recent weeks.
Ford’s two all-new small cars, the compact Focus and subcompact Fiesta, combined had sales of 29,423 in May, up 74% versus a year ago. It was Ford’s largest small car month since May 2008, Czubay said.
Volkswagen and smaller Japanese brands Mitsubishi and Suzuki all reported sales increases as did Subaru, though that maker also said it was running short of some models made in Japan.
Some of the month’s biggest gains, however, were posted by the Koreans, the maker’s aggressively aiming to take advantage of the misfortunes of their Japanese rivals. Hyundai sales were up 20.7%, Kia’s by 53.4%, with demand especially strong for new fuel-efficient models like the Hyundai Elantra.
Mercedes-Benz, Porsche and BMW also reported sales gains for May despite the soft economy. Audi, meanwhile, reported its fifth-consecutive record-setting month this year, May bringing the best U.S. sales in the company’s history.
The May sales numbers were clearly sobering reminders of the volatility in the American market. Among other things, it suggested that makers like GM, Toyota and Honda moved too quickly in trimming back incentives, which were down by an overall 0.7% for the month, but which declined by as much as 46% for Honda.
Going forward into the normally booming summer, makers are not likely to continue taking consumers for granted.
Paul A. Eisenstein contributed to this report.
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