Desperate auto dealers and parts suppliers pleaded for government aid on Tuesday, as the industry reported the 15th consecutive monthly drop in U.S. auto sales to the weakest level in 27 years.
Auto dealers are seeking at least $10 billion from the $700 billion Wall Street bailout fund, and suppliers are requesting several billion before the end of the month to prevent a spate of collapses.
"Today, we're in the vortex of the economic downturn," said Ford Motor Co. economist Emily Kolinski Morris, as automakers announced a 37 percent plunge in car and light truck sales last month compared with January 2008.
At January's anemic selling rate of 9.57 million vehicles, the lowest level since June 1982, the U.S. auto market is no longer the world's biggest, said General Motors Corp. industry analyst Mike DiGiovanni. "This is the first time China has passed the U.S. in monthly sales," he said.
In addition to depressed economic conditions and tight credit, tumbling demand from fleet buyers such as rental car companies contributed to the collapse in sales, which were 27 percent below December levels, according to Autodata Corp.
"We estimate industry fleet sales were down 65 percent or more from a year ago," said Ford market analyst George Pipas. The drop reflects declines in business and holiday travel as consumers and companies rein in spending.
The collapse in fleet sales hit Detroit's Big Three the hardest. Their combined market share shrank to 43.2 percent from 52.1 percent a year earlier, after GM's sales plunged 48.9 percent, Chrysler LLC's slid 54.8 percent, and Ford's fell 40.3 percent.
Asian brands took 49.5 percent of the U.S. market, up from 41.8 percent in January 2008.
Japan's leading automakers -- Toyota Motor Corp., Honda Motor Co. and Nissan Motor Corp. -- reported sales declines of around 30 percent each in January.
Hyundai saw sales gain
But Hyundai Motor Co. recorded a remarkable sales gain of 14.3 percent after tapping into the frightened collective psyche and offering to take vehicles back from buyers who lose a job or suffer another life-altering experience during the first year of ownership.
Amid the gloomy figures, executives identified a few encouraging signs, such as an uptick in consumer confidence levels in January and a rise in the manufacturing purchasing managers' index.
Auto executives noted that retail sales -- the term for sales to individuals through dealers -- had steadied in the past four months at an annualized rate above 8 million cars and light trucks. "We're heartened to see it stabilizing, even though it's stabilizing at an awful level," said Ken Czubay, vice president of sales and marketing at Ford.
Citing the same trend, GM Vice President Mark LaNeve said: "Hopefully that means we've found the bottom."
Automakers are bracing for an extremely weak market in the first six months. "We expect the first half of this year, and especially the first quarter, will continue to be difficult," said Bob Carter, head of Toyota's Toyota brand division.
Toyota and Ford expect sales to begin to recover in the second half of 2009. Ford estimates total vehicle sales will run between 11.5 million and 12.5 million for the year.
But GM and Chrysler executives were more cautious. Looking at the jobless rate, the weak economy and the credit crunch, there's not much "reason to think the industry is going to have a lot of growth for the foreseeable future for this year," said Chrysler Vice Chairman Jim Press.
"The market could be below 10 million," he said. "We need to recalibrate from a standpoint of where the market is and quit dreaming about pent-up demand."
GM has a conservative outlook, too, and is basing plans on industry sales of 10.5 million vehicles.
Toyota and GM executives say that despite deep production cuts, their vehicle inventories were still too high. On Tuesday, GM slashed its first-quarter output forecast to 380,000 vehicles from 420,000, which would represent a 57 percent drop from prior year levels.
GM's DiGiovanni said the automaker will propose a "cash-for-clunkers" program to boost demand in a report it is required to submit to the government by Feb. 17 to demonstrate how the company intends to be viable.
GM and Chrysler have received $13.4 billion in emergency loans.
Dealerships shed jobs
Also looking for federal aid is the National Automobile Dealers Association. The group is seeking billions in loans for its members from the $700 billion fund created to bail out Wall Street.
Auto dealers have about $100 billion in outstanding loans to finance vehicle purchases, and may have trouble repaying $10 billion or more. Their sector is in a deep slump. Almost 1,000 dealerships closed in 2008, and some 50,000 jobs were eliminated nationwide.
"This program would be designed to buck up the commercial lenders," said Andrew D. Koblenz, NADA's vice president and general counsel. He said several regional banks, such as Fifth Third, Regents Bank and Sovereign Bank, had stopped lending to dealers.
"Other lenders are hesitant to add any dealers," said John P. McEleney, an Iowa dealer who is the chairman of NADA. "This issue is critical. Without a floor plan loan, even a prosperous dealer cannot operate for more than a matter of days," he said.
McEleney is calling for a program under the bailout to guarantee floor plan loans.
The banks would have to retain some risk as part of a deal. Koblenz said the range could be $10 billion to $30 billion.
He said he had spoken with more than 40 dealers in the last six weeks. "They say, 'I'm making my payments. I'm current on everything ... but because my balance sheet has been hit by circumstances or there's concern about my (manufacturer) ... they're pulling' financing," Koblenz said.
He said the NADA was in talks with the Treasury Department and members of Congress about shoring up dealer floor plan financing.
Last month, a bill to overhaul the Wall Street bailout introduced by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, sought to clarify "Treasury's authority to provide support to the financing arms of automakers for financing activities to ensure that they can continue to provide needed credit, including through dealer and other financing of consumer and business auto and other vehicle loans and dealer floor loans."
Separately, auto suppliers are also seeking loans. Last month, Neil De Koker, president of the Original Equipment Suppliers Association, said suppliers were seeking $10 billion in government aid.
On Tuesday, Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association, reiterated the need, but said that number was in flux. "They have to act in the next three weeks," she said. "The clock is ticking."
'No money in the system'
Slumping production levels have battered manufacturers that supply auto components.
Auto assembly fell to almost nothing in December and January as automakers extended traditional holiday shutdowns in the face of sharply lower demand. "You get to the end of February and beginning of March. There's no money in the system. None," Wilson said. "So how are we going to make payroll? How are we going to keep the lights on?"
She said there was a "real willingness on the Hill and in the administration to try to do something" for the sector that employs more than 700,000 nationwide.
But it's complicated, she said. There are thousands of suppliers -- all with different financial situations. The suppliers haven't submitted a formal proposal to the Treasury Department but are in discussions. Options include assisting suppliers through the automakers.
"There's a lot of concern and we've talked to the administration about some further discussions with suppliers," said Rep. Sander Levin, D-Royal Oak.
As the government weighs options to stimulate demand, it needs to address the two keys to jumpstart a recovery -- halting foreclosures and falling home prices, and increasing the availability of credit, said GM's DiGiovanni. "In our industry, it's the No. 1 problem by far," he said. "People are coming in and wanting to buy vehicles, and they're being turned down. It's that simple."