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Oil price: Slump in motor sales raises fears for viability of Detroit’s car industry

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Oil price: Slump in motor sales raises fears for viability of Detroit’s car industry

· Ford shares sink to 23-year low as sales drop 28% 
· General Motors struggles but fights off Toyota

Fears are mounting over the financial stability of struggling US carmakers following a dismal June in which sales plummeted.

High petrol prices have caused a collapse in demand for pick-up trucks and big cars. Ford revealed yesterday that monthly sales in its core domestic market had dived by 28% to 167,090 vehicles as cash-strapped consumers shunned its showrooms.

Jim Farley, Ford’s vice-president for marketing, said: “Consumer fundamentals and consumer confidence deteriorated as the first half unfolded.”

There was a sliver of relief for Detroit’s dented pride as General Motors fought off Japan’s Toyota to remain the largest seller of cars in the US.

GM, which owns brands such as Chevrolet, Saab and Vauxhall, only suffered an 8.3% drop in sales as zero-interest financing offers proved popular. Toyota’s figures were worse, with a fall of 10.3% in the number of vehicles sold.

Mark LaNeve, GM’s vice-president for North American sales, conceded that the pick-up truck market was suffering from high prices at the petrol pump but said: “Asian manufacturers do not have a monopoly on fuel-efficient vehicles.”

The news caused a sharp rise in GM’s share price, which has fallen by 55% this year and was trading before the sales figures at a level last seen in the early 1950s.

Analysts are becoming increasingly alarmed that Detroit’s big three – Ford, GM and Chrysler – are losing money at an unsustainable level. The trio have already cut more than 100,000 jobs since a downturn began three years ago but none were prepared for the scale of the impact caused by the rising price of oil.

“We’re at a point where the Detroit three are certainly struggling,” said Brett Smith, senior industry analyst at the Center for Automotive Research in Michigan. “They’re like a boxer that’s taken so many body blows already that these latest hits are finally getting to him.”

The average price of petrol has reached $4.08 a gallon (54p a litre) in the US. Although half the typical cost in Britain, this is a rise of 38% in a year. Consumer confidence has fallen to a 16-year low.

Analysts believe the Detroit carmakers will need to find billions to keep afloat unless demand improves. Smith said: “Nothing is permanent but it looks like this slump is very long term at this point.”

Ford’s stock was at a 23-year low yesterday and Chrysler was obliged to issue a statement on Friday denying rumours that it was about to file for bankruptcy.

Chrysler was sold by the German carmaker Daimler to Cerberus Capital Management a year ago and many believe that the private equity firm is likely to be regretting its purchase. The carmaker generates 70% of its sales from pick-ups and 4x4s, which are being shunned as drivers seek more economical modes of transport.

Toyota, Honda and other Asian manufacturers are stronger in smaller cars that are more popular in Europe and Asia.

On Monday, Chrysler announced it was shutting a minivans factory in St Louis with a loss of 2,400 jobs. The company recently drew on a $2bn (£1bn) borrowing facility to cope with dwindling sales but its president, Tom LaSorda, said rumours of a break-up were “hogwash”.

The carmakers’ troubles are having a ripple effect on suppliers of car parts across the US. Other motor manufacturers are also suffering: the makers of Winnebago motorhomes and Harley-Davidson motorbikes are facing tough trading.

The car hire company Dollar Thrifty warned yesterday that its profits would be closer to $50m than the expected $97m, sending its shares plummeting by 41%.

Hertz, meanwhile, said it had increased its fleet of smaller vehicles by up to 30% in response to demand for more fuel-efficient cars on holidays and business trips.

Mark Frissora, chief executive of Hertz, remained upbeat: “Gas prices do have an impact on our business but not as much as you would imagine.”

Elsewhere in the world, the gloomy picture is much the same. In Spain, new car sales were down by 30.8% last month and in Italy, Fiat said its sales fell by 16.5%. But France did better with a 1.6% rise in the number of vehicles sold, aided by tax incentives for fuel-efficient models.

http://www.guardian.co.uk/business/2008/jul/02/ford.generalmotors

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