Bill Pierre Ford

Automakers posted better-than-expected sales last month, but the Big Three are facing declining market share and increasingly relying on incentives. Find out the latest developments in the industry:

There’s good news and bad news for the auto industry. While U.S. automakers enjoyed surprisingly robust new vehicle sales last month, the employment picture remains gloomy, with Ford and Chrysler planning to shed thousands more jobs.

The trend in the automotive industry reflects the economy’s jobless recovery. This is no surprise considering that, according to an industry-funded report, the auto industry is the country’s largest manufacturing employer, accounting for 13.3 million U.S. jobs. “No other single industry is more linked to U.S. manufacturing or generates more retail business and employment,” says Josephine S. Cooper, president and CEO of the Alliance of Automobile Manufacturers, which sponsored the recently released report. “New vehicle production, sales and other jobs related to the use of automobiles are responsible for 1 out of every 10 jobs in the U.S. economy.”

Automakers credited strong September sales on incentives, new models and a rebounding economy. Last month, they offered a firesale on 2003 model year stock—a deal that attracted hordes of consumers and drove yet another bumper month, according to reports. Sales of cars and light trucks rose 2.1% from September 2002. On a seasonally adjusted annual rate, sales totaled 16.7 million vehicles, up from 16.2 million of the previous year but down from August’s 19 million. Still, September figures were better than Wall Street predictions, which forecasted a tepid month following a red-hot August.

“This was above our midmonth expectation,” wrote Merrill Lynch auto analyst John Casesa in a research note. He called the industry’s September performance “respectable” and noted his surprise that “September’s sales didn’t dry up after August’s flood.”

However, declining market share and the increasing use of profit margin-thinning incentives continue to beleaguer the industry. These two factors contributed to the United Auto Workers’ decision to give in to a round of job cuts in labor contract negotiations last month. The Big Three will seek to shutter or sell about a dozen plants and slash tens of thousands of jobs as part of their agreement with the union. But some analysts believe that these job cuts are still not sufficient to make the companies competitive with foreign automakers such as Toyota Motor Corp.

On a year-on-year basis, Toyota sales surged 10.5%, Nissan sales skyrocketed by almost 20%, and Honda enjoyed a modest gain of 0.9%.

The Big Three automakers had less stellar results. Only General Motors Corp. showed a year-on-year improvement, posting a 12.1% sales gain, according to New Jersey-based auto analysis company, Autodata Corp. Meanwhile, Ford Motor Co.’s U.S. sales stayed mostly flat, down 0.5%, not including its foreign brands and heavy trucks, and Chrysler took a 15% year-on-year sales dive.

Chrysler, the U.S. arm of German-U.S. auto giant DaimlerChrysler, has struggled the most on the sales front lately. This is because the company has declined to participate in the clearance sale of 2003 models, says Chrysler sales chief Gary Dilts. He noted that the industry’s strong sales figures were “again fueled by nuclear level incentives.” Many analysts agree with this assessment. While some maintain that robust figures signify an improving U.S. economy, others believe that most of September’s sales for the Big Three were generated by huge rebates—as much as $7,000—on old 2003 models.

Most analysts expect overcapacity to continue to plague the industry—despite the plant closings and job cuts worked out by the Big Three and the United Auto Workers in their new agreements. This overcapacity has transformed the U.S. market into a “jungle,” says Chrysler president and CEO Dieter Zetsche.

“This jungle is an extremely fierce and competitive place,” Zetsche said in a speech earlier this month in Boston. “The U.S. market is under attack from all sides and in every segment—and by very competent competitors.” While the Big Three’s market share inched up last month from its record low in August, Japan’s Big Three has gained two percentage points of market share through the first nine months of the year. And falling market share, along with heavy spending on incentives, has meant that healthy sales do not necessarily spell profits for GM, Ford and Chrysler. Nonetheless, U.S. automakers plan to continue offering incentives to drive up sales. Even Chrysler, which has been slow to use such inducements, plans to be “extremely aggressive” on marketing and incentives in the fourth quarter in order to propel sales, says Dilts.

Still, others remained encouraged by robust U.S. auto sales. Sales rates around mid-16 million are considered strong. “I think all of us feel better about the economic fundamentals versus where we were six months ago,” says Paul Ballew, chief industry sales analyst for GM. Other trends in the industry include the rising demand for automotive electronics and consumers’ continuing preference for light trucks—sport utility vehicles, pickups and minivans—over passenger cars. Moreover, consumers continue to take advantage of discounts to trade up to luxury vehicles, as net prices decrease due to ongoing rebates and attractive financing.