Fuel fears puncture US car sales

SUVs have fallen out of favour amid concerns over fuel prices

Surging fuel prices have weighed on demand for sports utility vehicles (SUVs)and trucks, cutting into US sales for big name Detroit automakers.

Both General Motors (GM) and Ford have cut production as total May sales fell 16% and 6% respectively. Sales at Chrysler Group also fell 11%.

But Japanese carmaker sales continued to grow as consumers opted for smaller, more fuel efficient vehicles.

Toyota revealed sales surged 12.3% while sales at Honda grew 11.4%.

Meanwhile, overall sales at South Korean carmaker Hyundai rose 5% during the month, despite a sharp drop in SUV and truck sales.

The market share of the so-called Big Three - GM, Ford and DaimlerChrysler - sank to 52.9% in May compared with 57.6% a year ago, while Asian carmakers now account for 40.2% of US sales.

Fuel worries

The trio have traditionally relied on SUVs and larger vehicles to drive sales, but concerns over rising fuel prices - which are nearing $3 a gallon - has crimped demand.

Meanwhile, overall consumer thirst for new vehicles has slipped as Americans face up to increased utility bills, anxieties over job prospects, and the short-term prospects for the economy.

This was a challenging month for us Paul Ballew, GM Check GM's share price Check Ford's shares See DaimlerChrysler shares

"The overall industry in May was dampened by rising fuel prices and interest rates," said Mark LaNeve, GM's head of North American sales.

According to Autodata Corp, overall industry sales slipped to a seasonally adjusted 16.1 million units for the year to May, compared with 17.2 million at the same time in 2005.

"I think it's totally due to consumer nervousness about gas prices," Burnham Securities analyst David Healy said. "People get scared by seeing that $3 (per gallon) sign."

In order to cut fuel bills, buyers are downsizing from the bigger "gas guzzlers" to medium and small sized vehicles - the market sector dominated by Asian carmakers.

As a result, sales of Toyota branded passenger cars surged almost 20% during May.

Promotion drive

In an attempt to reverse their fortunes, GM and Ford announced they would be cutting production levels in the coming quarter.

Both carmakers have been struggling under the weight of rising wage and raw materials costs, developments which have prompted the pair drastic cost cutting drives leading to a series of swingeing job cuts.

The two have also attempted to boost sales by offering incentives to buyers.

On Thursday, Ford announced it would be giving $1,000-worth of fuel to new buyers across the US, while GM is trialling a similar scheme in California.

"This was a challenging month for us," conceded Paul Ballew, GM director of global marketing and industry analysis.

However, the picture was not all rosy for Asian manufacturers.

Nissan announced sales slipped 7% in May with sales of both cars and SUVs falling.