Sales Plummet in June as Automakers Struggle to Adapt to Rapid Market Changes

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Researched by Industrial Info Resources (Sugar Land, Texas)--Traditionally in the North American automotive industry, foreign automakers have done a much better job of forecasting market trends than American automakers. As a result of their forward-thinking philosophy, foreign automakers have been able to prepare for changes within the market much more rapidly than the Americans. However, the recent rapid rise of the price of oil and gas has apparently caught both sides flatfooted. As a result of not having predicted the rapid changes, both foreign and domestic automakers suffered a dismal sales month in June as they have been unable to adjust to the rapidly changing purchasing habits of the North American consumer.

With the exception of Honda Motor Company Limited (NYSE:HMC) (Torrance, California), which posted a very modest 1.1% rise in sales primarily because of the fact that its North American production is based on cars rather than trucks and SUVs, all of the other major automakers suffered dramatic declines in sales in June. Chrysler LLC (Auburn Hills, Michigan), the smallest of the Detroit Three, suffered the largest drop in sales for the month of all of the automakers with 35.9%. Ford Motor Company (NYSE:F) (Dearborn, Michigan) saw sales drop 28%, followed by Toyota Motor Manufacturing North America's (NYSE:TM) (Torrance) surprising decline of 21.4%. General Motors Corporation (NYSE:GM) (Detroit, Michigan) reported a decline of 18.2%, and Nissan Motor Company Limited (Smyrna, Tennessee) rounds out the major automakers with a decline of 17.8% for the month.

Sales of pickups and SUVs have virtually disappeared in North America as consumers simply cannot afford to pay the gas necessary to drive these types of vehicles. Another problem compounding the issue is the fact that since none of the automakers foresaw this major shift in purchasing, the supply of fuel-efficient cars is drying up across the continent. Consumers who would like nothing better than to trade in their fuel hogging pickup or SUV are finding it difficult to locate a fuel-efficient car to replace them. Some vehicles, like the Toyota Prius, are experiencing a backlog that goes on for months since there are simply none to be found in North America.

Currently, the automakers are in a bit of a dilemma. Some, like GM, have announced plant closings and shift reductions specifically aimed at reducing truck and SUV production. Toyota, however, is going to have to make some major strategy changes in the near future. It has a new assembly plant in Ontario about to finish construction that is intended to produce RAV4 SUVs as well as a grassroot facility in Mississippi that just began construction to produce Highlander SUVs. Upper management will have to decide whether they will continue with those plans or make changes and invest additional money to, in the case of Ontario, retool the facility to manufacture a vehicle more in line with what sales indicate will be needed. In the case of the Mississippi facility, they eventually will have to completely change what they assemble before the new plant gets too far into construction.

These types of decisions will not be made lightly as the market could certainly make another dramatic shift at some point in the near future if the oil side of the equation can be dealt with in a timely manner. With consumers clamoring for governmental interference and relief at the pump in the United States, it is hard to tell what will happen in the next year in regard to gas prices. However, major shifts in production philosophy are certainly in order for most of the automakers as they struggle to keep pace with a rapidly changing automotive landscape. Billions of dollars are at stake now as the automakers scramble to adjust to consumer requirements. The rest of 2008 will be critical to the automotive industry as a whole as they make, or in some cases don't make, the necessary adjustments within their own philosophies to match the marketplace.

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