Transcripts

Auto Sales Are Running Out of Gas

SUSIE GHARIB: Sales at U.S. automakers in June tumbled as more American consumers shifted from gas-guzzling SUVs to smaller, more fuel efficient cars. The nation's big automakers reported today sharp double digit declines, largely due to gas prices that topped $4 a gallon during the month. Sales at General Motors, the nation's largest automaker dropped 18 percent. GM said again today it's paying close attention to fuel efficiency. The story was even more dramatic at Ford. Total sales plunged almost 28 percent. SUVs were off 55 percent, but Ford's car sales actually gained ground, rising 3 percent. Chrysler also continued to struggle; sales there skidded 36 percent. The automaker is extending its $2.99 gas guarantee program through the end of August. Even Toyota felt the pain. While its small car sales were strong, overall June sales fell 11.5 percent and that's mainly due to a big drop in light trucks and SUVs. Well, our Midwest bureau chief Diane Eastabrook follows the U.S. auto industry and she joins us now. Diane, I understand you're just back from Detroit. Tell us, what was the mood in the motor city?

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well suffice it to say Susie, there is a lot of anxiety among the U.S. companies. Their big cash cows of sport utilities and pick ups have really fallen out of favor with American consumers because of these very high gas prices. And that is creating some challenges for the domestic manufacturers. In Detroit these days, U.S. auto companies are suffering from severe whiplash. In the past couple of months, $4 plus gasoline has spurred a dramatic consumer shift away from gas guzzling sport utilities and pickups to cars. It's part of the reason why Toyota with its broad assortment of small more fuel efficient cars has been outperforming the U.S. companies. Still, auto executives and experts are asking the same question: is this change in consumer preference permanent? Jeffrey Schuster, JD Power's head of automotive forecasting thinks it is.

JEFFREY SCHUSTER, EXEC. DIR., AUTOMOTIVE FORECASTING, J.D. POWER: This is not just a temporary shift because of gas prices alone. I think it has caused enough jitters with the consumer and enough of at least with the discretionary buyer that doesn't need the vehicle to say, I don't need this vehicle and I'm going to get out of it. I'm going to have something else.

EASTABROOK: Many auto executives agree demand for large sport utilities and pickups won't return to the peak sales levels they saw earlier in the decade. But they aren't sure U.S. consumers, who have enjoyed the roominess of trucks, will all want to switch to cars. Chrysler Vice Chairman James Press says car companies will have to carefully balance their portfolios and make larger vehicles more fuel efficient.

JAMES PRESS, VICE CHAIRMAN, CHRYSLER CORPORATION: What we want to do is we want to build small cars, mid size cars, full size cars, trucks, SUVs that are also responsible so you don't have to make a compromise. You shouldn't have to buy a small car if you don't want it just to get mileage. You should be able to get it in like a Journey crossover.

EASTABROOK: And many of the executives say (INAUDIBLE) next year's auto shows we're likely to see a lot more crossovers and concept cars, Susie.

GHARIB: So Diane, from all the people that you've been talking to, with gasoline now at $4 a gallon, is the era of big SUV's really over? What are you hearing? EASTABROOK: Well, not necessarily. Basically what they're saying is going forward people who buy SUVs are going to be buying them because they need them. These are the people that are hauling boats. They're hauling trailers and they're also business people that need them to haul things. What they're not going to see, what they don't think they'll see down the road are people who have been buying them in the past who like to sit above traffic were buying SUVs because they were cool. Those people are likely to go into crossovers or maybe even cars.

GHARIB: Now we know that these big automakers are really struggling. Look at their June sales numbers and each one has a turn around plan. Are they on the right track in this new environment? What is the sense that you get from talking to them? EASTABROOK: Well, the sense that I get is that they are on the right track. They are coming out with more not just sport utilities, but hybrid sports utilities. Those are the things that people may want to buy. By the end of the year, General Motors will have about eight hybrids out. Chrysler is coming out with its first hybrids in a couple of weeks or maybe even a few weeks down the road and those are things that people may be interested in buying. The other thing that they are doing is they're closing down under performing factories and they're becoming more nimble at those that they're keeping open. In other words, if they need to switch over to cars from trucks or trucks to cars, they'll be able to do that.

GHARIB: So really quickly, are they preparing then for a world where high gas prices are here to stay or are they a temporary problem? EASTABROOK: Basically the message they sent us was the days of $2 gasoline are long gone. We're going to be seeing higher prices in the long run and they really think that we're going to be on par with the rest of the world, so look to Asia as a clue. Asia and Europe are the clue. GHARIB: All right. Thanks a lot Diane. We look forward to your series next week on the outlook for the auto industry and we've been speaking with Diane Eastabrook, our Midwest bureau chief.