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The Honolulu Advertiser
Posted on: Tuesday, October 4, 2005

As gas costs rise, SUV sales tank

By Roger Vincent
Los Angeles Times

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Americans' passion for sport utility vehicles cooled in the face of $3 a gallon gasoline last month, helping drag down September sales for General Motors Corp. and Ford Motor Co. as their Asian competitors enjoyed double-digit sales increases, the companies reported yesterday.

Sales declines of 24 percent at GM and 19 percent at Ford, compared to September 2004, also were impelled by popular discount programs that pulled many of this year's sales into mid-summer.

America's Big Three automakers offered sales incentives over the summer that promised the same prices provided to company employees. Sales shot up for about two months, but market observers predicted that sales would slide after buyers were sated.

"They exhausted their customers and their inventories in July and August," said auto analyst David Healy of Burnham Securities Inc. "This is the hangover from the employee-discount pricing."

"Expect a very weak fourth quarter as well," said Steven Szakaly, an economist at the Center for Automotive Research in Ann Arbor, Mich.

Perhaps more troubling for manufacturers was cooling interest last month in the gas-loving SUVs that have been big profit generators.

Sales of the GMC Envoy and Chevrolet Tahoe fell more than 50 percent. The Cadillac Escalade, Mazda Tribute, Ford Explorer, Ford Expedition, Toyota Sequoia and Nissan Armada dropped 18 percent or more. The Dodge Durango slipped 11 percent.

New SUV models on the horizon could improve the picture, Healy said, but he predicted a long-term decline in sales of large SUVs.

The run-up in gasoline prices, compounded by recent hurricanes on the Gulf Coast, hurts more than just SUV sales, Szakaly said. Higher fuel costs also cut into families' disposable incomes, he said. "Consumers are saying they are not going to keep spending at the rate they were before gas prices went up," he said, adding that some probably will delay buying new cars.

Standard & Poor's expressed similar concerns about rising gas prices and falling auto sales yesterday. The credit-rating agency said it is reviewing its debt ratings of GM and Ford for possible downgrading. Lower ratings would make it more expensive for the automakers to borrow money, adding to the financial woes of the country's two largest auto manufacturers.

GM spokeswoman Deborah Silverman predicted that October would be another month of "payback" for hot summer sales, but the declines would be offset by the 6 percent increase in sales during the four-month employee-discount program that ended Sept. 30. It reduced inventory from 1.2 million vehicles to 800,000, about 300,000 less than the company had this time a year ago.

GM will emphasize more transparent pricing in the months ahead, she said, so that buyers who start their shopping on the Internet can more accurately compare costs.

The company is experiencing strong sales in several new models including the Hummer H3, Pontiac G6, Cadillac DTS and Chevrolet Impala and HHR. The HHR is a so-called "crossover" combination of SUV and passenger vehicle that uses a car chassis instead of a truck chassis. Such vehicles are growing in popularity as buyers shy away from full-size SUVs.

Rising gas prices didn't stop buyers of pickup trucks, though. Sales of DaimlerChrysler's Dodge Ram were up 5 percent for its best month ever, and Toyota Motor Corp. saw sales of its Tacoma climb more than 21 percent.

DaimlerChrysler beat the other U.S. automakers with a 4 percent increase in overall sales, led by a 26 percent boost in car sales. The Dodge Neon, which DaimlerChrysler stopped making two weeks ago, saw a 69 percent increase.

Nissan Motor Co. sales were up more than 16 percent and Toyota's climbed 10 percent, both on increased auto sales. The hybrid Toyota Prius jumped 90 percent. Honda Motor Co.'s sales rose 11.7 percent, largely due to consumers' embrace of the redesigned 2006 Civic.

Hyundai Motor Co.'s sales rose 9 percent. Volkswagen AG will report its sales today.