U.S. auto sales forecast to fall below 15M in '08

U.S. auto sales forecast to fall below 15M in '08
Analysts predict a drop of more than 1 million for the year, derailing industry's recovery.
Christine Tierney / The Detroit News
U.S. auto sales are likely to contract by more than a million units this year to fewer than 15 million cars and trucks, the lowest level in more than a decade, according to a forecast issued Tuesday by Standard & Poor's Ratings Services.

S&P predicts U.S. light vehicle sales will fall to 14.9 million units from 16.1 million last year and 16.5 million in 2006, mainly because of high oil prices and tight credit.

At this stage, most automakers are more optimistic, expecting sales to fall in a range between 15 million and 15.5 million cars and trucks for 2008. But consulting and research firm J.D. Power and Associates recently issued a similarly gloomy prediction, cutting its full-year sales forecast to 14.95 million from 15.7 million previously.

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Such a steep drop in demand threatens to derail the recovery of the U.S. automakers. They have been hit even harder by the downturn than their Asian rivals because of lower demand for large vehicles. Meanwhile, many of their cost-cutting efforts will take time to yield results.

"It will be almost two years before the U.S. automakers begin to reap the large cash health care savings incorporated in the 2007 labor contract with the United Auto Workers," S&P credit analyst Robert Schulz said. "The next 21 months will be crucial for the domestic automakers as they try to reduce losses and cash use in their North American operations."

During the first quarter, sales weakened to an annualized rate of 15.2 million units, as the economy and consumer confidence weakened.

Several auto executives, notably Ford Motor Co. sales chief Jim Farley, predicted earlier this month that the second quarter would be as difficult as or even more difficult than the first. Toyota Motor Corp. and General Motors Corp. still hold out hope for a recovery in the second half of the year.

The last time U.S. light vehicle sales fell below 16 million units was in 1998.