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Cracking the
auto
sales code


Fortune's Alex Taylor III explains how to untangle the results of September's auto sales report.


http://i.cnn.net/money/.element/img/1.0/logos/fortune_logo.gif (http://money.cnn.com/magazines/fortune)

By Alex Taylor III (atalyor@fortunemail.com), Fortune senior editor

October 2 2006: 8:10 AM EDT


NEW YORK (Fortune) -- There will be more than the usual amount of number crunching going on after results are announced Tuesday for car and truck sales in September. The report will mark the end of the 2006 model year, so statisticians will be totaling up the winners and losers. Economic forecasters will be scrutinizing the numbers, too, to see how sales were impacted by the collapse in the real estate market. And industry analysts and insiders will be digging into the data to find if some current trends - like the impact of gasoline prices - are intact or headed for reversal.

Here are some other questions they will be trying to answer:

How did Ford and Chrysler weather the storm? September was a cruel month for both Detroit companies, as they slashed production schedules and forecast big losses. Some of their problems are product-based: too many pickup trucks and truck-based SUVs at a time when consumers are sensitive to gasoline prices.

Management gets a good chunk of the blame, too. At Ford (http://money.cnn.com/quote/quote.html?symb=F) (Charts (http://money.cnn.com/quote/chart/chart.html?symb=F)), Bill Ford was overworked until he brought in Alan Mulally from Boeing as CEO. The execs at Chrysler (http://money.cnn.com/quote/quote.html?symb=DCX) (Charts (http://money.cnn.com/quote/chart/chart.html?symb=DCX)) showed bad judgment by trying to wish away the company's growing inventory of unsold vehicles instead of cutting production. September's numbers won't be pretty. Merrill Lynch's John Murphy expects Chrysler sales to fall 13 percent vs. a year ago.

Will General Motors profit from their distress? GM (http://money.cnn.com/quote/quote.html?symb=GM) (Charts (http://money.cnn.com/quote/chart/chart.html?symb=GM)), which couldn't do anything right six months ago, is benefiting from a lull in its run of bad news. Buyers of domestic cars tend to stay with domestic brands, so if Ford and Chrysler buyers are deserting, they will wind up at GM or cross over to imports.
Longer run, however, sustained progress may be difficult. Joe Barker, sales analyst for CSM/Worldwide in Detroit, says flatly, "The Big Three market share loss will be the Japanese and Korean gain. "

Have pickup truck sales stabilized? One of the dirty secrets of the Detroit Three is how dependent they are on full size pickups. At Ford, the F-series accounts for one fourth of the volume and an even greater percentage of the profit. Automakers expected pickups sales to remain strong this year despite high gasoline prices because so many of them are used for work, but that hasn't been the case. Standard and Poor's figures sales are off 14 percent so far because of a combination of slowing residential construction and high fuel costs. If falling gasoline prices don't spur a rebound soon, it is going to be a long, cold winter.

What's the outlook for hybrids? With gas prices gyrating, the anti-hybrid whispering campaign (spread by companies that don't sell hybrids) is increasing in intensity. So far, no trend is visible. Sales of the popular Toyota Prius were up in August but down for the year, while the stylish Honda Civic hybrid was down for the month but up for the year.

Part of the problem may be production capacity but there is enormous speculation about whether the appeal of these vehicles is economic (pay more for the hybrid but save on fuel costs), or psychic (do something good for the planet by reducing emissions) or a combination of both.

Has the industry permanently realigned? In July Toyota (http://money.cnn.com/quote/quote.html?symb=TM) (Charts (http://money.cnn.com/quote/chart/chart.html?symb=TM)) outsold Ford and Honda outsold Chrysler. Toyota did it again in August but Honda (http://money.cnn.com/quote/quote.html?symb=HMC) (Charts (http://money.cnn.com/quote/chart/chart.html?symb=HMC)) slipped back. Since Ford is light on new models this fall, and Toyota is pursuing an aggressive expansion campaign, you'd expect Toyota to hang on to second place. Chrysler, on the other hand, still has a slew of '07 models to unveil, so it should stay ahead of Honda for a while longer. Still the handwriting on the wall seems clear: the Big Three has been replaced by the Big Six (with Nissan (http://money.cnn.com/quote/quote.html?symb=NSANY) (Charts (http://money.cnn.com/quote/chart/chart.html?symb=NSANY)) bringing up the rear).

The wild card in this equation may be GM. It turned in a stronger-than-expected performance in August and is expected to outperform Ford and Chrysler again in September. Insiders had figured that as GM backed away from incentives and fleet sales, its share would slip to 20 percent or 21 percent. Merrill Lynch's Murphy, though, sees it getting 26.5 percent of industry sales in September, which means it will be looking more robust as it talks merger with Renault/Nissan's Carlos Ghosn (http://money.cnn.com/2006/09/14/news/companies/gm_nissan_renault/index.htm?postversion=2006091412) and money with activist shareholder Kirk Kerkorian (http://money.cnn.com/2006/09/28/news/companies/gm_kerkorian/index.htm?postversion=2006092812).

http://money.cnn.com/2006/09/29/magazines/fortune/pluggedin_taylor_autosales.fortune/

Hi Terry:

___Another nice find! I watched GM sales semi-stabilize a few months ago while F and DCX appear to have finally stabilized just this month. I do not know if they can sustain the progress however? GM has a ton of new vehicles whereas Ford appears to be missing product in some important segments. B-Class sized subs where they are non-existent, compacts (ancient Focus vs. the Japanese, Korean’s, and even the domestics), and even the F-150 trucks need an update. I can only hope the blood letting is over but anytime the Investment houses sniff a whiff of trouble, the Big 3 get taken to the woodshed. Kind of like being an opposing pitcher going up against the infamous 1927 Yankees - “Murderers’ Row” during there heyday.

___Way OT and I am not much of a sports fan but “Murders Row” popped into my head while writing this reply so I just had to do a google it ;)

History of the World Series - 1927 - TSN celebrates Murderers' Row (http://www.sportingnews.com/archives/worldseries/1927.html)

The 1927 Pittsburgh Pirates were an outstanding team as the presence of Pie Traynor, Paul and Lloyd Waner and Glenn Wright would indicate. The Pirates were talented enough, in fact, to win the National League pennant, finishing 1 1/2 games ahead of the defending World Series champion St. Louis Cardinals and two in front of the New York Giants.

There was one major problem confronting manager Donie Bush's Pirates, though, as they prepared for the World Series. Their postseason opponent would be a truly great team - quite possibly the best club in the history of the sport. Leveling opponents at virtually every turn, the New York Yankees had won the American League pennant by a staggering 19 games.

Babe Ruth and Lou Gehrig were the biggest guns in the Yankees' shoot-first, ask-questions-later attack. In the regular season, they combined for 107 home runs and 339 RBIs. Ruth, 32, set a major-league record with 60 homers, topping by one the mark he had set six years earlier. Gehrig, in only his third season as the New Yorkers' regular first baseman, set a big-league record with 175 RBIs.

Two other Yankees, Bob Meusel and Tony Lazzeri, exceeded the 100-RBI mark. Meusel drove in 103 runs, and Lazzeri had 102.

As murderous as the Yankees' row of sluggers was, manager Miller Huggins' athletes could hit for average. The outfield of Ruth, Meusel and Earle Combs combined for 597 hits and a .350 average - Ruth and Combs hit .356, and Meusel finished at .337. Gehrig batted .373.

The Yankees could exhibit some speed, too - thanks largely to the presence of Combs, the gifted center fielder who whacked 23 triples in 1927. And the New Yorkers didn't play station-to-station baseball. Meusel stole 24 bases (second-best in the league), Lazzeri 22 (tied for third in the AL) and Combs 15.

New York could get people out, too. Waite Hoyt tied for the league lead with 22 victories and was second in ERA at 2.63. Relief ace Wiley Moore won 19 games and headed the AL with a 2.28 ERA; Herb Pennock also won 19 and Urban Shocker 18. Dutch Ruether and George Pipgras ranked fifth and sixth on the Yankees' list of winners, but they combined for a 23-9 record.

It was a many-faceted juggernaut, to be sure. One that rolled to 110 victories, an AL record that stood for more than a quarter of a century.

___Good Luck

___Wayne