Rising fuel costs hurt Big Three's sales

updated 6:45 p.m. ET June 1, 2006

DETROIT - Rising gas prices took a toll on the U.S. auto industry in May, flattening sales and causing steep declines for some trucks and sport utilities but giving a boost to Japanese automakers whose new subcompacts hit the market at the right time.

General Motors Corp. said sales were down 12 percent for the month, while Ford Motor Co. reported a 2 percent decline and DaimlerChrysler AG’s Chrysler Group saw sales fall nearly 11 percent.

At the same time, Toyota Motor Corp. and Honda Motor Co. saw double-digit sales increases as consumer demand for more fuel-efficient vehicles grew. Toyota’s overall sales were up 17 percent and car sales were up nearly 25 percent thanks to strong sales of the automaker’s new Yaris subcompact and redesigned Camry sedan. Honda’s sales were up 16 percent and car sales shot up 21 percent as buyers snapped up the Fit subcompact and redesigned Civic sedan.

“It’s Honda’s fuel economy leadership that is driving sales,” Dick Colliver, executive vice president of American Honda Motor Co., said in a news release.

Industrywide sales were flat compared with last May, with trucks and SUVs down 7 percent but cars up 6 percent, according to Autodata Corp. The seasonally adjusted sales rate for May, which shows what total sales would be if they remained at the same rate for the entire year, was 16.1 million vehicles. Automakers sold 17 million vehicles in 2005.

That was a slower sales rate than many on Wall Street expected. In a note to investors, Morgan Stanley analyst Jonathan Steinmetz said investors should take a cautious approach toward auto stocks and warned that weak sales could lead to costly measures such as production cuts or heavy incentive spending.

Paul Ballew, GM’s executive director of market and industry analysis, said automakers felt the full brunt of a spike in gas prices that began in April. Rising interest rates also hurt sales, he said.

But Ballew said GM and other domestic automakers also are fighting the outdated stereotype that their vehicles aren’t fuel efficient. Ballew pointed out that GM offers more vehicles that get 30 miles per gallon than any other automaker.

“That is a story line we have to correct out there in the minds of consumers. By default, Honda and Toyota get credit in consumers’ minds for those attributes,” Ballew said. “Let’s put some facts on the table instead of wishing ill and beating on us and other domestics.”

GM said its car sales fell nearly 16 percent, largely due to cuts in sales to rental car companies. Truck and SUV sales were down 10 percent. Even GM’s new 2007 Chevrolet Tahoe, which has enjoyed a sales boom this spring, was down 5.5 percent in May.

Ballew said comparisons to last year’s sales will continue to be difficult throughout the summer, since GM and other domestics saw near-record sales last year because of its employee discounts.

“We’re not looking at the (new) utilities and wringing our hands,” he said.

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