SUV sales slowdown slams U.S. automakers

John W. Schoen Senior producer • Profile • E-mail

For the past decade, U.S. automakers have been riding high on American car buyers' extremely profitable love affair with SUVs and light trucks. Now, plagued by rising gasoline prices and stubbornly high labor costs, Detroit is finding it has little room to maneuver its way out of a sharp drop in sales.

There's nothing wrong with the auto business overall: car sales in the U.S. are on track to hit 17.5 million cars this year -– up a bit from 2004. But American automakers are getting left in the dust by foreign rivals as the boom in sales of gas-guzzling SUVs appears to have come to an end. The slowdown appears be magnified by a big sales push earlier this summer spurred by deep discounts.

“There have been huge declines in the sales of SUVs for Detroit which are their most profitable models,” said David Healy at Burnham Securities. “August was lower, September was slower still and from what I read things are extremely slow in early October.”

As American automakers' sales have slumped, Japanese car makers have been gaining market share. For September, the combined share of the Big Three automakers fell to 54.9 percent, down 6.7 points from the same period a year ago. The Asian brands boosted their share of the U.S. market by 6.3 points to 38.3 percent, according to industry tracking firm Autodata. SUV and truck sales at GM were off 30 percent, while the same segment was down nearly 27 percent for Ford.

The uphill road for U.S. car makers may be getting steeper. For starters, switching gears to smaller, more fuel-efficient vehicles will take time. Worse, it’s not likely to help GM and Ford’s profit picture in the short term. Not only are American car makers seeing less profit from lost SUV sales, they continue to lose money on those smaller vehicles. At GM, for example, the average profit on an SUV came to nearly $6,000 last year; for a large pickup, it was nearly $3,000, according to DeutcheBank Securities analyst Rod Lache. But GM lost money -- roughly $2,600 on average -– for every mid-size car it built, according to Lache’s estimates.

One big reason: American car makers bear a huge labor cost that their Japanese and European rivals don’t. Workers in Japan and many European countries are covered by national health plans, sparing car makers there the burden of rising U.S. health care costs. Foreign car makers that have set up plants in the U.S. over the past decade haven’t built up the large numbers of retirees that are supported by their American rivals. The result is that the Japanese can build a car in the U.S. for $1,500 to $2,000 cheaper that Detroit can, said Healy.

“The foreign producers have exploited this cost differential to put more features into the car without raising the price,” he said.

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