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As Demand Shifts, Supply Constraints Hold Back US Car Makers
DOW JONES NEWSWIRES
July 2, 2008 7:36 a.m.
By Sharon Terlep
Of DOW JONES NEWSWIRES
(This article was originally published Tuesday)
DETROIT (Dow Jones)--U.S. auto makers can't keep up with surging demand for fuel-efficient small cars, a further complication for an industry already reeling from a dramatic shift away from profitable trucks and SUVs.
General Motors Corp. (GM) and Ford Motor Co. (F), in reporting another steep decline in overall vehicle sales in June, said Tuesday that their sales of cars fell 21% and 14%, respectively, during the month compared with a year ago.
The companies said they couldn't move fast enough to satisfy consumers who are clamoring for fuel-efficient cars amid $4-per-gallon gasoline. GM estimated vehicle shortages cost the auto industry 40,000 sales last month.
"They're pumping out vehicles as fast as they can, but everybody's fallen into this trap," said Rebecca Lindland, an industry analyst with Global Insight in Lexington, Mass. "Every new plant built in recent years has been a truck plant. There just isn't a lot of capacity out there for cars."
GM, Ford and Chrysler LLC are scrambling to reinvent themselves into leaner companies far less reliant on the hulking trucks that have long driven profits in Detroit. The companies have slashed pickup and SUV production while adding shifts and overtime at car plants.
The shift toward small cars is hitting U.S.-based auto makers harder than Asian rivals, which have more robust supplies of cars and deeper pockets to withstand a stagnant U.S. economy.
Honda Motor Co. (HMC), for example, has the capacity to build 400,000 Honda Civic small cars annually, while GM can build only 250,000 Chevy Cobalts, according to Global Insight data. Honda's car sales rose 19% in June from a year ago, helping its overall sales inch ahead 1.1%.
Supplies remain tight even as virtually every factory that builds small cars for U.S. consumers is running at or above capacity.
GM reported an 18% overall drop in May, despite significant sales increases for vehicles such as the Cobalt and the Chevrolet Aveo subcompact. In a noteworthy twist, the decline in car sales outpaced the decline in truck and SUV sales during the month at GM.
The auto maker, buoyed by a month-end promotion to offer six years of free financing on many models, managed to prevent Toyota from taking the U.S. sales lead for the first time in June.
"With higher availability on some of our in some cars and crossovers, we would have had more sales," GM Sales Chief Mark LaNeve said. "We've been outright constrained in some cases where dealers were just out of cars."
Jim Farley, head of Ford marketing and communication, said capacity constraints created an "artificial barrier" for the company last month. Ford reported an overall 28% decline from a year ago, as its SUV sales plummeted 55% last month.
John McEleney, a Clinton, Iowa, auto dealer, has almost run out of small cars at his Chevrolet, Toyota and Hyundai stores. He's down to two Chevrolet Cobalts between two Chevy dealerships. Usually, he said, each store would have at least 20 in stock.
"It's quite a departure from what we're used to," he said. "When people are ready to buy, they move pretty quickly. I'm sure we're losing some of those customers to another dealer or another manufacturer."
The rush on cars may provide an opportunity to U.S. auto makers to win over new buyers, analyst Lindland said. Car buyers, if they're faced with wait times or higher prices for Asian-brand vehicles, may weigh a domestic nameplate, she said.
"It's so hard to get on consumers' radar screens," she said. "This could provide a benefit."
Toyota, which saw its overall sales fall 21% last month, said that it's down to a one-day supply on its Prius hybrid and two days on the Camry hybrid.
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Rich Belloff
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