US auto slump moves beyond the Big Three

Fierce competition is shaking up the automotive marketplace in ways that go beyond a simple divide between Detroit and foreign brand names.

It may come as no surprise, for example, that Toyota posted the biggest sales gain in May, but consider the other major company that surged forward: General Motors.

Fuel-efficient cars helped both companies – that's right, GM too – rack up sales that together captured 41 percent of the US market.

Not faring as well in recent weeks: Ford Motor Co. and Japan's second biggest automaker, Honda.

Ford's vaunted F-Series pickup, long the chart-topper among US cars and trucks, is now eating dust from GM's newly revamped Chevrolet Silverado. The Chevy trucks sales have surged, thanks to a package of power and fuel efficiency that beats many rivals.

Honda's road is less bumpy than Ford's, but sales of its Accord sedan are down 14 percent in the past year. Honda's overall volume is up a bit, but in today's hotly contested car market, such gains are hard won.

"Of the big six, the manufacturer that increased incentive spending the most over the last year and last month was Honda," says industry analyst Alex Rosten of Edmunds.com, a major car-shopping website, based in Santa Monica, Calif. "It kind of goes to show that incentives are necessary in today's automotive climate."

That climate has grown more difficult over the past year, for several reasons.

Rising mortgage rates, and a slump in the housing market, is squeezing some consumers' purchasing power when they shop for cars, analysts say.

Gas prices have hit new highs above $3 per gallon in recent weeks, and have been elevated long enough for car shoppers to wonder whether they'll ever hit $2 again. That, too, is affecting the choices consumers make at the dealership.

People aren't just looking for good fuel economy. They're often looking for a car that will fit a tightened household budget.

In response, carmakers are trying to lure buyers with better lending terms.

"The incentive spending that's going on is focusing more on leasing and financing, rather than cash rebates," says Mr. Rosten.

At the same time, a solid US job market means that car shoppers are still looking for more than just low payments and high mileage.

That tilts the playing field toward carmakers rolling out good new designs.

"The market's becoming more competitive," says Tom Libby, an auto analyst in Troy, Mich., at market-research firm J.D. Power and Associates. "There's a big contrast among the companies' performances."

The overall pie has been shrinking slightly, with sales on track to remain relatively healthy, above 16 million units for the year in the US.

But compared to this time last year, 2007 unit sales are down 1.3 percent.

In this environment, most of the major carmakers are tacking on larger incentives to move vehicles off the lot.

The biggest givebacks come from the Detroit-based threesome of GM ($2,963 per vehicle in May, according to Edmunds), Ford ($3,040), and the Chrysler Group ($4,050). As Chrysler struggles to move excess inventory, parent company DaimlerChrysler of Germany is moving to sell Chrysler to Cerberus, a private investment fund.

But Honda's incentives have soared by the most dollars per car: from $922 a year ago to $1,399 in May. Toyota's incentives are also up, to $1,140 per car. Givebacks totaled $2,083 at Nissan, the smallest of the "big six" car sellers.

With buyers putting a new premium on fuel economy, Toyota has been the big winner in the US market. The company is passing GM this year as the leader in global sales, and its US sales are likely to pass Ford, coming in second only to GM with American buyers.

Sales of Toyota's high-mileage Corolla sedans hit an all-time high in May, while its hybrid Prius accelerated onto the top 10 list of all cars and light trucks for the month. Sales of the Prius, rated at 46 miles per gallon, are up nearly 200 percent in a year.

GM says that its May sales surge was also propelled in part by consumers conscious of gas prices. Its smaller Chevy Aveo and Cobalt posted sales gains from a year ago.

But the ups and downs of the carmakers also hinge on frugal sticker prices and fresh designs.

Volkswagen, for example, isn't known for low mileage. But lower-cost South Korean brand Kia is chasing VW for the No. 9 slot in US car sales.

High labor and healthcare costs put the traditional Big Three at a sticker-price disadvantage. But from contractors to sportsmen, many drivers need powerful trucks, even when gas prices soar.

That segment of the market remains Detroit's bastion, despite Toyota's new Tundra pickup, with sales of a made-over Silverado up 15 percent from last May. But Ford's older F-Series has sagged 12 percent in that stretch.

The moral: Increasingly, car buyers are snapping up newer products, whether at the low or high end. That explains why it's such a tough year for Ford.

"They have a replacement for the F-Series that's in the pipeline," says Mr. Libby. But Ford "has to become profitable. You need money to invest in new products."

Ford accounts for four-fifths of the Big Three's loss of market share this year – a dip of 2.5 percent in all – to foreign brands. Toyota is Ford's mirror image: It alone accounts for most of the gain by foreign-based brands.

GM has many hurdles ahead. But it is benefiting from rollouts, epitomized by a Saturn brand where the entire lineup will soon be two years old or newer, says Rosten.

"GM's advantage ... comes from the fact that they were the first to act when it came time to launch a turnaround," he says. For Ford, now under a new chief executive, "I think it's gotten about as bad as it's going to get."