Pickup, SUV sales fall as gas cost soars

'Fundamental change' seen by US automakers

By Bloomberg News  |  June 5, 2008

SOUTHFIELD, Mich. - Ken Thompson never had much trouble selling Silverado pickups at Classic Chevrolet in Grapevine, Texas, the largest US truck dealership. Now, at the 23-acre, 2,000-vehicle lot near Dallas, customers walk away from deals at $16,988, a third off the sticker price, he says.

"It's the deepest discount we've seen in many months," says Thompson, the manager of fleet sales. The problem isn't sticker shock, he says. It's pump paralysis. "You fill up one of these and it costs over $100," Thompson says.

Multiply Classic's slump by declines at the 14,293 other General Motors Corp., Ford Motor Co., and Chrysler LLC dealerships in the United States, and the scale of the financial disaster facing them emerges. Pickups and the larger lines of sport-utility vehicles aren't just Detroit's biggest chunk of revenue; they have generated almost all of the industry's operating income, says John Casesa, an analyst for Casesa Shapiro Group in New York.

"For the last 20 years, pickups and sport utilities have more than made up for losses on all Detroit's other vehicles," Casesa said. "It's unbelievable to watch a whole way of doing business change so drastically."

In the face of $4 a gallon gasoline, ever bigger, ever more luxurious pickup trucks and large sport-utility vehicles no longer capture the imaginations or disposable incomes of American consumers. Should this year's sales trend continue, GM, Ford, and Chrysler would sell 1 million fewer of these truck-based vehicles annually, forgoing as much as $10 billion in pretax profit.

GM, the biggest US automaker, said Tuesday it will close four North American pickup and large SUV factories, cutting capacity by 700,000 vehicles a year. As it repositions away from trucks, GM said it will add 200,000 units of new car production. It also said it may revamp or sell its Hummer brand of SUVs.

The surge in fuel costs is "a structural change, not just a cyclical change," GM chief executive Rick Wagoner said Tuesday. Just last month, Ford chief executive Alan Mulally declared the consumer shift away from trucks "a fundamental change."

Sales of full-size pickups fell 36 percent and large SUVS were off 42 percent in May, automakers said Tuesday. Total vehicle sales dropped 11 percent, the biggest decline this year.