The oil-price-driven reshaping of business continues in the US, with the car — that American dream — front and centre.
Three weeks ago, Ford revealed big changes to its strategy, cutting production of its most profitable but petrol-chewing sports utilities and pick-ups (or trucks). That will delay its return to profitability by two years as the company said sales fell off a cliff in early May, and it expected oil to remain around current levels until at least the end of 2009.
That was when oil was peaking at $US135.09 a barrel: now it’s a bit lower, thanks to the gradual realisation that the US dollar’s fall has stopped, and last night’s policy switch by the Fed, which prompted a $US4 in the cost of oil, plus big falls in other commodities.
But that is not material. Oil prices are now expected to remain around current levels for the foreseeable future, and to rise gradually over time.
And US car buyers seem to be adapting faster than most groups around the world. US car sales in May fell sharply for the Big three American-owned groups: so much so that General Motors is now following Ford in slashing output of its Sports Utility Vehicles (SUVs) and pick-up ‘trucks’ in favour of more fuel efficient cars. It is also closing four plants, as it also looks to save money quickly from a damaging lengthy strike at a key supplier that cost it $US2 billion.
GM’s justification for its changes echoed those of Ford: the changes were being made in response to what it said was a permanent change in consumer behavior.
And car sales figures reveal that Chrysler — now owned by the Cerberus private equity group and investors (which also owns 51% of the troubled GMAC finance company)– saw its sales plunge 25% in May.
The combined sales of US-based Asian car makers outsold GM, Ford and Chrysler because they are concentrating on more fuel efficient smaller vehicles. Japanese and South Korean car manufacturers boosted May sales by a combined 3.7%, while GM, Ford and Chrysler as a group saw sales plunge nearly 21%.
Sales of some US company models rose: for example the smaller, German-designed Ford Focus saw sales rise 53% in May. That’s a big message to the US companies.
Even mighty Toyota, which is expecting lower profits this financial year because of the falling sales in the US market, is looking at slashing production of its Tundra SUV, which it designed and made in the US to compete with similar products from the Big Three. Toyota sees its fleet of small cars doing well, but not well enough to beat the expected slump in overall sales in the US, meaning cutbacks across the board.
The Honda Civic moved past Ford’s F-Series pick-up truck to become the biggest-selling vehicle in the US, with three other Japanese cars also moving past the Ford truck in the sales pecking order. In fact it was a trio of cars all well-known here: the Honda Accord, Toyota’s Camry and Corolla.
Honda is now the Number four car maker in the US, moving past Chrysler to rank behind GM, Toyota and Ford. Chrysler’s plunge came because its product line up is dominated by fuel-chewing light trucks, which it can’t give away at the moment, except at big losses. It’s clear now that Daimler, makers of Mercedes, exited Chrysler at the right time and the so-called smart private equity investors have bought into a lemon.
$US4 a gallon petrol is the driver: Americans are driving less, using less petrol and buy more fuel efficient vehicles. Here in Australia, Ford and GM still have petrol-chewing big six cylinder cars as their big calls: both the Holden Commodore and Ford Falcon though are facing rapidly falling sales and probably won’t be around after 2010 in their present forms.
Business is rapidly outpacing politicians in responding to what they now concede is a permanent change in the markets for oil, petrol and motor vehicle sales.
It’s a lesson that is still lost on many Australian motorists, their lobby groups, and politicians from both sides: with special mention to Brendan Nelson, Kevin Rudd and lastly, Malcolm Turnbull, because his bagging of Mr Nelson’s 5 cents a litre cut policy was spot on and he didn’t have the guts to do anything about it except backslide.