The Wall Street Journal-20080115-The Detroit Auto Show- Auto-Sales Angst Reaches the High End- Luxury-Car Segment Shows Some Weakness As Pessimism Deepens
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The Detroit Auto Show: Auto-Sales Angst Reaches the High End; Luxury-Car Segment Shows Some Weakness As Pessimism Deepens
DETROIT -- Several auto-industry executives are signaling increasing pessimism over what is already expected to be a weak year for car and truck sales, with some suggesting economic difficulties could be affecting upscale consumers more than expected.
"We already have a depression in the housing industry and a recession in the auto industry," said Michael J. Jackson, chairman and chief executive of AutoNation Inc., at an interview at the North American International Auto Show here.
He added, "We'll see if it spills over into a full recession, but the economy is very vulnerable right now." AutoNation is the nation's largest chain of auto dealerships by locations.
The latest sign of trouble: Luxury-car sales, which some had hoped would hold up, are now showing more pockets of weakness. The figures follow last week's move by jewelry retailer Tiffany & Co. to cut the top end of its profit forecasts, a potential sign that affluent Americans are also being hit by the weakened housing market.
Sales in the luxury segment fell 6.1% in 2007, despite strong sales for some newly redesigned big-sellers like BMW AG's 3 Series compact sedan. Hit hard were midsize and large sedans, which sell for $50,000 and up and normally generate huge profits for premium auto manufacturers. Sales of Mercedes-Benz's flagship S-Class sedan, which was overhauled only a year ago, tumbled 15.6% last year.
Audi AG, the luxury brand of Volkswagen AG, saw its sales rise 3.8% to 93,508 vehicles, but only because it added a new sport-utility vehicle called the Q7. Without it, the brand's sales fell 9%.
James Selwa, president and CEO of Maserati North America Inc., said sales of his company's cars are continuing to rise, but noted they sell for over $100,000 and typically appeal to people who have more than $10 million in assets and are unlikely to feel much of a pinch in any economic downturn.
But he is now seeing signs of economic stress among people one rung down on the economic ladder -- a group he calls the "mass affluent." These are consumers who typically made money in the stock market's run-up in the 1990s, bought expensive homes, refinanced their mortgages and now are getting squeezed.
"They are feeling a lot less wealthy now," Mr. Selwa said.
At the Detroit show, luxury car makers unveiled a range of new vehicles aimed at wealthy buyers, from an Audi sports car with a big V12 diesel engine to the new BMW X6, a kind of cross between a sports car and a sport-utility vehicle.
Yet concern about what unexpected shocks to the economy might be lurking in 2008 remained on executives' minds.
"The mood here is somber," said Mr. Jackson, the AutoNation CEO. Later today he will elaborate on his worries before an audience of auto-industry analysts at an annual gathering on the sidelines of the Detroit show.
Many repeat customers at AutoNation's dealerships are coming in with much lower credit scores than they had a few years ago, and delinquencies on auto loans have crept up, Mr. Jackson said.
Dieter Zetsche, chief executive of Mercedes owner Daimler AG, said he doesn't expect the U.S. economy to fall into recession and believes the Federal Reserve will cut interest rates. On the other hand, he said, "there are a number of concerning signals and probably more bad news to come out" in the banking and credit markets.
There is no doubt 2008 will be difficult for mainstream auto makers, especially Detroit's Big Three. Ford Motor Co., which lost $12.6 billion in 2006 and is likely to report another loss in 2007, expects industrywide sales of cars and light trucks to slow significantly in the first half of the year. Ford, General Motors Corp. and Chrysler LLC have already planned major production cuts in the first quarter in anticipation of the slump, but may be forced to increase incentives to prop up demand.
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Mike Spector contributed to this article.
