Tumbling vehicle sales prompt more output cuts

By Will Waterman

LONDON (Reuters) - The car industry reeled from another day of grim headlines on Tuesday, with further news of production cuts and tumbling vehicle sales in Europe, Asia and Africa.

As the global financial crisis makes consumers increasingly reluctant to part with cash and lenders unwilling to offer credit, carmakers across the world have struggled to find buyers to keep their production lines running.

The extent of the crisis was underlined as Europe's finance ministers squabbled over whether to spend their way out of trouble or keep their budgets balanced, while a 1 percentage point rate cut by Australia set the scene for likely steep cuts later this week by the Bank of England and European Central Bank.

New car registrations in Germany, Europe's largest car market, dropped 17.6 percent in November from a year ago, the VDIK association of foreign carmakers said on Tuesday, adding to a string of similar news across the continent on Monday.

It was the same story in Africa's top economy, South Africa, where new vehicle sales plunged 28.3 percent in the month.

In response to the downturn, Japan's Toyota Motor Corp (7221.T), the world's biggest auto manufacturer, and Tata Motors (TAMO.BO), India's biggest, both revealed new production cuts to avoid a build-up of unsold stock.

Toyota is halting production at assembly lines in two factories in Japan for two days later this month, cutting production primarily of its premium Lexus marque, which has seen a 24 percent drop in sales so far this year in Japan and sharp falls in the U.S., its main market.

Toyota also said it would trim bonuses for nearly 9,000 of its managers.

Tata said it was suspending production at its commercial vehicle plant in Pune for three days from December 5, while local rival Mahindra & Mahindra (MAHM.BO), India's top maker of utility vehicles and tractors, said its November sales slumped 39 percent.

Sweden's Volvo (VOLVb.ST), the world's number two truck maker, said its order intake had dropped substantially in several markets, and it would make cuts in production mostly in December to adapt to the fall.

Shares in Toyota, Volvo, Tata and Mahindra were all down between 1.2 and 8.2 percent on Tuesday.

WORSE TO COME

"The crisis has again worsened dramatically, as expected," Germany's VDIK President Volker Lange said, forecasting 2008 car sales would be the worst since German reunification in 1990.

South Africa's National Association of Automobile Manufacturers (NAAMSA) echoed his gloomy diagnosis.

"Sales in all segments of the South African new vehicle market had weakened significantly, suggesting that conditions in the South African economy had continued to deteriorate rapidly," it said.