SUV sales slowdown slams U.S. automakers

With market share declining, both GM and Ford have cut production: GM slashed output by 20 percent in the first three quarters of this year; Ford has cut production by 9 percent.  But building fewer cars only intensifies the profit pressure of high overhead for pensions and health care costs because it spreads the same fixed cost burden over fewer cars.

To try to boost sales, General Motors earlier this summer kicked off massive discount program – selling cars at prices normally available only to GM employees. The program was a short-term success: sales spiked, and Ford and DaimlerChrysler followed suit, posting big sales gains of their own.

But the program apparently did little more than rob sales from the fall. Now that those heavy discounts have been removed, GM and Ford dealers are reporting that showrooms are much quieter than normal for this time of year.

The solution, say analysts, will likely inflict more pain on American auto workers and retirees. Both GM and Ford are working on plans to cut jobs, close plants and build fewer cars.

Shareholders are feeling the pain too. GM’s stock has lost of third of its value so far this year: Ford is down 40 percent. Both companies have built up cash hoards of at least $20 billion to weather the painful restructuring that lies ahead. But a shareholder revolt – demanding a big dividend payout or a spinoff of profitable units like GM’s finance arm – could spell big trouble.

“The major wild card in our outlook for GM is whether major shareholders take matters into their own hands,” wrote Lache in a recent research note.

Selling off assets and draining cash could accomplish another key goal: winning steeper concessions from the United Auto Workers union. Because the company is on a relatively strong financial footing, with cash to burn and assets to sell, the union has been slow to make concessions, said Lache.

But problems besetting American car makers extend all the way up through senior management. Though the quality of American cars has improved, they haven’t offered consumers that overall appeal – from styling to features – of their foreign rivals, say analysts. Though they’re rolling out redesigned lines of  SUV’s and pickups, it’s not clear that the new models will be enough to get American car makers back on track.

“You can count on the fingers of one hand the number of hot models GM Ford and DaimlerChrylser have,” said Healy. “An awful lot of car buyers are increasingly finding them boring and shifting over the foreign brands.”

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