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Car Makers' Boom Now Looks Like a Bubble This decade has already seen burst bubbles in tech stocks, homes and credit. Now, it seems, another segment has fallen victim to irrational exuberance: the U.S. auto market. Like investors who sent dot-com stocks or house prices to unsustainable levels, auto manufacturers in the U.S. have pushed their sales volumes to new peaks over the past decade. They invited customers to buy cars at employee prices, extended no-interest loans for up to six years and sold unprecedented numbers of vehicles to rental fleets -- all strategies that some analysts say drove U.S. auto sales to artificial highs. Through most of the 1990s, auto makers sold a little over 15 million cars and light trucks a year in the U.S. market. That changed in the late 1990s: With gasoline prices low and many U.S. consumers feeling flush from the tech-stock boom, auto sales surged. Sales peaked at 17.4 million in 2000 and remained near 17 million for another five years. Heads of General Motors Corp. and Toyota said the U.S. was entering a golden age of the automobile. In 2003, Toyota's head of North American sales predicted the industry would soon be selling 20 million vehicles a year. They were wrong. Sales started falling in 2006 and this year are expected to be right back where they were in the 1990s, at just over 15 million. Last week, market researcher Global Insight Inc. lowered its 2008 forecast for U.S. vehicle sales to below 15 million. Global Insight now believes sales won't reach previous highs again until 2012, a year later than it had previously thought.The industry's miscalculations hold broader consequences for the U.S. economy. The auto industry is the nation's largest manufacturing sector, accounting for almost 4% of U.S. gross domestic product. It employs about 2.5 million people directly or indirectly, and spends tens of billions of dollars a year in research and development.

As Credit Tightens, the Auto Industry Feels the Pain The auto industry is getting sideswiped by the housing crisis. Auto lenders and banks, closing their wallets, have prevented hundreds of thousands of consumers from obtaining the financing for a car. Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots. Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates. The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown. Mortgaging the House to Buy a Car

A world of difference: Two cars built on the other side of the globe: The Nissan Cube points the way to the automotive future; the Pontiac G8, back to the past. Simply by chance, a pair of new cars fell into my hands last weekend that perfectly demonstrated the yin and yang of today's auto industry. The Pontiac G8 was powerful, exciting, fun to drive - and as obsolete as the buggy whip. The Nissan Cube was homely, utilitarian and slow - and we all ought to get used to it, because that's what most of us are going to be driving in the future. An era of personal indulgence in automobiles - when prosperity and cheap gasoline made big and fast available to everyone - is rapidly being replaced by an age of limits. The brakes are being applied by the terrible troika of climate change, government fuel economy standards and $4 gasoline. There is no other alternative. It may come a surprise to conspiracy theorists, but the auto companies and the oil refiners haven't been collaborating to keep hyper-efficient cars off the market. That's because they don't exist. There isn't a technological path towards achieving a fleet average of 35 miles per gallon by 2020 - as the federal government wants - or 44 miles per gallon as California is pushing for. For all the happy talk about alternative fuels, the cars of tomorrow will of necessity be much lighter, smaller and slower than the ones of today. There is simply no other alternative if you want to use less energy.

Results  & Outlook

Big trouble on tap for Big Three in May sales results The massive consumer exit out of gas-quaffing trucks and SUVs and into crossovers and cars is gathering momentum in the U.S., and with monthly vehicle sales tallies due Tuesday, not even Toyota is immune to the fallout. Still, it's that troubled trio from Michigan, and their historic reliance on the higher-margin, heavy-metal segment, that have taken the biggest hit.

GM, Ford, Chrysler Lose to Asian Makers for First Time as Small Cars Rule Asian automakers outsold Detroit's Big Three in the U.S. for the first time last month as fuel-conscious consumers shunned General Motors Corp. and Ford Motor Co. trucks for Honda Civics and Toyota Corollas. Japanese and South Korean companies boosted May sales by a combined 3.7 percent. GM, Ford and Chrysler LLC as a group fell 21 percent as gasoline near $4 a gallon drove U.S. consumers from pickups and sport-utility vehicles. Honda Motor Co.'s Civic small car dethroned Ford's F-Series pickup to become the best-selling vehicle in the U.S. Three other Japanese cars also overtook the industry's perennial sales champion, underscoring a shift that prompted GM to announce the closing of four truck plants in North America today. GM will expand production of cars in response to what it called a permanent change in consumer behavior. ``I've never known the market to change this much this quickly in my lifetime,'' said Jim Hossack, a market analyst for AutoPacific Inc. in Tustin, California, and former engineer for Ford, Chrysler and Mazda Motor Corp. ``It's fueled by gasoline prices, obviously, but there's more to it than that.''

Players

Ford Stumble Signals Rising Risks The rise of gasoline prices toward $4 a gallon is causing a major shift in the U.S. auto industry that threatens to push the Big Three auto makers and some of their rivals to a new level of peril. In recent weeks, sales of pickup trucks and sport-utility vehicles -- already falling in recent years -- took an unexpectedly sharp tumble. Those declines triggered a surprise announcement by Ford on Thursday that it's now "extremely unlikely" the company will return to profitability in 2009, as it previously predicted. Just last month, Ford was hailed by the market after it reported an unexpected $100 million in first-quarter net income. In a Thursday conference call, Chief Executive Alan Mulally said the industry has "reached a tipping point" and that the falling truck sales represent a long-term shift in the U.S. auto market, not a short-term dip.On Thursday, Ford said it will cut truck and SUV production by as much as 40% in the second half of this year, compared with the year-earlier period. Previously, Ford had hoped to get a second-half lift from the launch of a redesigned F-150 pickup truck. The F-150 is the top-selling vehicle in the U.S.Ford's woes are a measure of the toll that fuel prices are taking on the Big Three and rivals like Toyota Motor Corp. and Nissan Motor Co. that have also tied their fortunes in the U.S. to full-size trucks. In the first four months of the year, light trucks accounted for 50% of the U.S. market, down from 54% a year earlier. Kerkorian Proceeds With Ford Offer, Waives Condition on Share-Price Drop

Ford Chief Abandons 2009 Profit Goal on Rising Costs Ford Motor Co. abandoned a target of returning to profit next year because of rising costs for steel and gasoline, a month after Chief Executive Officer Alan Mulally said the second-largest U.S. automaker expected to meet its goal. Ford fell the most in almost a month on the New York Stock Exchange. North American vehicle production will be cut for the rest of this year, the Dearborn, Michigan-based company said today. Mulally told analysts and reporters on a conference call that the sales outlook darkened in May's first half. The CEO declined to say whether he expects a profit in 2010 and said Ford, which lost $15.3 billion in the past two years, would know more when it reports second-quarter results in July. U.S. sales at the maker of F-Series pickups and Explorer sport- utility vehicles fell 9.8 percent this year through April as gasoline prices approached $4 a gallon. ``It's a stumble,'' said Bernie McGinn, president of McGinn Investment Management Inc. in Alexandria, Virginia, which owns 300,000 Ford shares and bought more this morning. ``It's a punch in the gut to people in Detroit, but the long-term story is still intact. This is still a two- or three-year play.'' Ford will pare North American production 15 percent from a year earlier this quarter, from a previous 12 percent cut. It plans to reduce output in the region as much as 20 percent in the third quarter and up to 8 percent in the fourth quarter. Ford Plans New Global Car Production

• Ford Motor Co.'s plan to return to profitability got run over by a truck.
• Ford Gets Sideswiped by Credit Unit Ford Motor Co., whose plan to return to profit next year has been derailed by a plunge in sales of trucks and sport-utility vehicles, faces a second blow from the worsening plight of its once-lucrative Ford Motor Credit arm. Ford's predicament, however, is similar to that of many mortgage lenders. Delinquencies are rising on its loans -- especially those for big trucks -- and some of its borrowers owe more than their vehicles are worth. Ford Credit once paid billions of dollars a year in dividends to its parent, including a total of $16.7 billion from 1998 to 2006. Those dividends buoyed the auto maker during downturns in vehicle sales and helped to fund developments of new models. But Ford Credit didn't make a payout to Ford in 2007 and, because of its expected slide in profit, doesn't plan to make one this year, contrary to the unit's earlier predictions.
• Ford's U.S. sales Sink as Trucks, SUVs Sag

GM buys out 1/4 of wage earners General Motors Corp. said Thursday that a quarter of its U.S. hourly workers will take the company's latest buyout and early retirement offers, opening the door for new hires who will make less money. The automaker said Thursday that 19,000 workers had agreed to take the buyout offers and leave the company by July 1. GM offered buyouts to all 74,000 of its U.S. hourly workers in February. GM never said how many workers it hoped would take the buyouts, but under a new labor agreement reached last fall with the United Auto Workers union, GM may hire up to 16,000 non-assembly workers at half the old wage of $28 per hour. GM said it would fill job openings with current employees wherever possible, but would also be hiring new workers. Troy Clarke, GM's North American president, said GM is trying to reshape its business in a challenging U.S. market, which has seen a steep dropoff in auto sales due to high gas prices and the weak economy. GM comes to grips with $4 gas Under fire, the automotive giant will unveil its plan Tuesday for coping with pricey gas. GM Closing Four Truck and SUV Plants in North America, GM posts 27.5 percent May sales plunge, General Motors: Where's the beef?

Toyota reports 28 percent drop in fiscal 4th quarter profit Toyota said the strong yen and weaker U.S. sales took a bite out of January-March earnings and projected worse was to come -- a 27 percent plunge in its full-year profit. It would be the first drop in full-year profit in seven years for the automaker. The results and outlook released Thursday highlight how the tough North American auto market is hammering profits. Meanwhile, unfavorable currency swings added to a growing list of problems for Toyota Motor Corp., including soaring material and energy costs and a stagnant auto market in its home market of Japan. Still, the company appeared to be faring better than its American rivals. GM lost $3.3 billion in the first quarter. Ford had a surprise profit of $100 million for the same period but expects to lose money this year as the U.S. auto market deteriorates. Honda Motor Co., Japan's No. 2 automaker behind Toyota, said last month that its January-March profit declined 86 percent compared with the same period a year ago because of a corporate tax levied on its Chinese joint venture. Nissan Motor Co. reports earnings next week. For the fiscal fourth quarter, the automaker reported a 28 percent drop in net profit to 316.8 billion yen ($3.05 billion). It was the first decline in quarterly profit since April-June 2005.

• Toyota's so-called tumble But what came after that should have drained the smiles from their faces faster than a run-in with Tony Soprano. Toyota made a forecast for the next 12 months that is just as grim as its results over the last three. Toyota sees hard times. And if Toyota - the industry's biggest, strongest player - catches a cold, most of the rest will likely develop pneumonia.

(!!) A talk with Chrysler's turnaround team Chrysler's leadership troika talked recently with Fortune's Geoff Colvin about learning from consumers, improving quality, surviving against giant competitors, and much else.

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Auto Industry: Pressures, Changes & Outlook - Finding V1