March 3, 2008 / 8:23 PM / 9 years ago

February auto sales tumble, Detroit hit hardest

<p>New Ford trucks for sale at a car lot in California, January 14, 2008. Automakers General Motors and Ford on Monday reported double-digit U.S. sales declines in February and cut second-quarter production plans in the face of a slumping economy and high gas prices.Mike Blake</p>

DETROIT (Reuters) - U.S. auto sales tumbled in February in the face of a slumping economy and high gas prices with double-digit declines by all three struggling Detroit-based automakers.

Sales at General Motors Corp(GM.N), Ford Motor Co (F.N) and Chrysler LLC CBS.UL fell 16 percent, 10 percent and 17 percent, respectively. GM and Ford responded with cuts to second-quarter production plans, while Chrysler rolled out a new program of sales incentives.

"February was a very disappointing month for industry sales," GM Vice Chairman Bob Lutz told Reuters at the Geneva auto show. "We still expect the economy to recover in the second half. Our crystal ball is not that much better than anybody else's."

Japan's Honda Motor Co Ltd (7267.T) was the only major automaker to buck the downturn with an increase of nearly 1 percent. Toyota Motor Corp (7203.T) and Nissan Motor Co Ltd (7201.T) reported declines of 6.6 percent and 3 percent, respectively.

Auto sales represent one of the first snapshots of overall U.S. consumer demand, and the weakness in February results could provide more evidence for those who believe the U.S. economy has already slipped into recession.

GM's results were at the bearish end of analysts' expectations due to weaker demand for trucks such as the Chevrolet Silverado and Chevy Tahoe. GM said it would cut second-quarter production by 5 percent from year-ago levels.

Ford said it would cut second-quarter production by 10 percent due to weaker demand for its market-leading F-Series full-size pickups and SUVs like the Explorer and Expedition.

Ford also said it would eliminate shifts at four U.S. plants and lay off some 2,500 workers -- or almost 5 percent of its remaining work force -- as part of an effort to cut costs and return to profitability next year.

Chrysler's sales were hurt by lower demand for its Jeep SUVs, as well as its Ram pickup truck and minivans.

Sales numbers were adjusted for an additional selling day in February compared with a year earlier.

Calling the Bottom

"It would be premature, certainly, to conclude that either the economy or the industry have reached bottom yet, but we are doing our best to maintain a steady hand on the wheel as we navigate through this current down cycle," Ford economist Emily Kolinski Morris said on a conference call.

She added that Ford, the No. 3 automaker by sales in the U.S. market now behind Toyota, expects U.S. economic growth this year of about 1.5 percent.

The overall industry's U.S. February sales fell 10 percent with an annualized selling rate of 15.36 million vehicles.

Analysts expect industry-wide 2008 U.S. auto sales to extend a downturn that accelerated in the second half of last year, reflecting the slumping housing market, higher gas prices and tighter credit. Some industry observers have even predicted a 15-year low for sales this year below 15 million vehicles.

"We're obviously not insulated from the subprime crisis or the 'R' word that everyone is talking about," Nissan division manager Al Castignetti told Reuters in a telephone interview.

A key question for the industry now is whether U.S. demand for new vehicles starts to tick higher in the second half of the year, an optimistic assumption some automakers have built into sales and production plans.

Toyota President Katsuaki Watanabe, speaking to reporters on the sidelines of the Geneva auto show, said the automaker still expected a second-half recovery, although tighter credit conditions have injected a note of uncertainty.

Toyota expects a flat year in sales for the industry, although a spokesman said the Japanese automaker will revisit its forecast after the first quarter.

As industry sales have slumped, sales incentives have risen. Edmunds.com said industry incentives in February rose 17 percent to $2.95 billion, with the three U.S. automakers accounting for almost 71 percent of the total.

Those figures could rise further as Chrysler responded to the weak February sales by rolling out a new package of incentives for March, including zero-percent financing and free Hemi engines on its Dodge Ram trucks. The new offers will boost incentive spending by about 5 percent in March from February levels, executives said.

Ford marketing chief Jim Farley said the automaker had stepped up incentives on some vehicles like the F-150 pickup truck line, but added that Ford's overall incentive spending was lower than a year earlier.

(Additional reporting by Marcel Michelson and Gilles Castonguay in Geneva)

Reporting by Ben Klayman and Kevin Krolicki, editing by Richard Chang, Leslie Gevirtz

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