Challenge for Ford and GM: To Stay in Business

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Includes: F, GM
by: Michael Shedlock

CNN Money is reporting Ford sales plunge.

Ford Motor (NYSE:F) reported that its U.S. sales tumbled 28% in June from a year ago, in what could turn out to be the weakest month for auto sales in 16 years. The No. 3 automaker in terms of U.S. sales, saw demand for its SUVs plunge by more than half and for pickups and other trucks fall more than a third.

Even the so-called crossovers, saw sales off 18% from a year earlier, as buyers went searching for more fuel efficient vehicles in the face of record $4 gas prices. But Ford apparently didn't have the car models buyers were looking for, as its car sales fell 12%.

The overall sales slide was worse than the forecast of a 25% drop from auto sales tracker Edmunds.com. Edmunds is also predicting a 25% drop in sales at General Motors (NYSE:GM), a 12% decrease in sales at Toyota Motor (NYSE:TM) and 31% plummet in sales at Chrysler LLC.

Jim Farley, Ford group vice president said buyers' new demand for cars provided Ford an opportunity.
Ford Sees Opportunity

One has to laugh (or is it cry) at the "opportunity" presented to Ford. Opportunity to do what? Scale down truck production to produce more cars that no one wants either?

There is no opportunity here, but there is a challenge. The challenge for both Ford and GM is to stay in business.

Auto Bonds Plunge

Reuters is reporting Automakers' bonds tumble after Ford sales slump.
Ford's bonds with a 4.25 percent coupon due in 2036 fell to 68 cents on the dollar, down from 72 cents on Monday, according to MarketAxess.

General Motors Corp's bonds with an 8.375 coupon due in 2033 fell to 57.5 cents on the dollar, down 2 cents on the day, according to MarketAxess. At their trough on Tuesday, they traded at 57 cents on the dollar, a record low.
Carmakers Complain About Fuel Rules

The big carmakers say fuel rule plan too strict.
Global sales leader Toyota Motor Corp, General Motors Corp (GM) Ford Motor Co (F) Chrysler LLC and other manufacturers complained in a regulatory filing that a planned 4.5 percent yearly increase between 2011-2015 is unworkable.

"This goes beyond what it is technologically feasible and economically practicable," the companies' trade group, the Alliance of Automobile Manufacturers, said. "It would require manufacturers to expend resources at a pace that is excessive given the fact that the auto industry is already under economic stress," the companies said.

The Transportation Department's National Highway Traffic Safety Administration (NHTSA) is drafting a rule that would set annual targets for satisfying a new law mandating a 40 percent jump in fleet-wide average fuel efficiency to 35 miles per gallon by 2020.

Automakers said the "most important problem" is that regulators underestimate the costs and overestimate the benefits of fuel saving technologies.

They complained the plan to "front-load" efficiency gains for the fleet in the first years of the program -- nearly 32 mpg by 2015 -- especially penalizes sport utilities, pickups and vans because they are more expensive to make than cars.

Between 2011-15, new cars would have to get 35.7 mpg, while light trucks, including sport utilities, pickups and vans would need to reach 28.6 mpg.

The government estimated it would cost manufacturers about $16 billion to meet the 2015 standard for cars and $31 billion for light trucks.
Valid Complaint

On this score the automakers have a valid complaint. If customers want to drive gas guzzling vehicles they will. However, recent trends suggest they don't. At any rate, it should be up to consumers to demand higher gas mileages, not big brother.


Even though the complaint is valid, it rings at least a bit hollow. The reason is the plunge in SUVs and trucks is going to be so deep and last so long that aggregate vehicle mileage is going to go up on its own accord, by consumer preference alone.