2005 gas in price rising

With area gas prices close to record highs, local General Motors dealerships have seen sales plummet 25 percent on average this year--bad news for a company already in the throes of a nationwide earnings decline.

The sales drop is more than some area dealerships had forecast and has resulted in excess inventory. As gasoline prices continue to climb, and the automaker remains reliant on gas-hungry trucks and SUVs for sales, little immediate relief is in sight.

"It's kind of a depressing time for us," acknowledged Arnold Guerrero, general manager of Leo Hoffman Chevrolet in the City of Industry, calling sales at the dealership a "negative."

The world's No. 1 automaker shook up Wall Street earlier this month when it halved its 2005 profit forecast and announced that it expected to lose $1.50 a share in the first quarter.

With February sales off nearly 13 percent, GM said it would slash vehicle production by 10 percent through the second quarter, with 101 days of unsold vehicles on dealer lots.

Locally, the damage appears even worse.

The Southland Motor Car Dealers Association had earlier forecast that the combined sales of GMC and Chevrolet--the lines that include the company's trucks and big SUVs--would drop a line over 8 percent this year.

But regional sales are far off that mark, according to Joe Herold, a board director of the California Motor Car Dealers Association, a statewide dealer trade group, who put the number at closer to 25 percent across all GM lines.

"I stocked less this winter time expecting to sell less after the end of the year, and that is exactly what happened," said Herold, who owns Quality Chevrolet in Escondido.

While there is some debate over the cause of the decline, many dealers and analysts point to GM's reliance on tracks and SUVs like the Chevrolet Suburban and Tahoe--as well as the company's slowness in introducing more fuel-efficient vehicles. New offerings such as the big Pontiac Aztek have fallen flat.

The problems were signaled a year ago when the Southland association reported that the local market share of lull-size SUVs across all makes fell about .5 percent in 2004, among the larger drops of any vehicle category.

This year, national sales of the behemoth vehicles, which include GM's Chevrolet Suburban and GMC Yukon, crumbled 21 percent in February from the prior year, according to Power Information Network, a Westlake Village-based affiliate of J.D. Power and Associates.

Some area dealerships have taken an even bigger hit as the average gallon of self-serve regular gasoline in the Los Angeles area rose to $2.35 last week--the 10th consecutive week prices rose. California's average of $2.31 per gallon was the highest in the nation. Because of the state's stringent requirements in refining gasoline, prices typically are the highest.

Ji Suh, general manager of Vermont Chevrolet Buick, said sales of large SUVs are down 50 percent to 60 percent compared with last year. In particular, Chevrolet Suburbans, Tahoes and Avalanches have taken a hit, according to Suh, who noted that higher gas prices are scaring off car buyers.

"When the media starts talking about the gas prices, then people really start losing confidence, and they hold back," he said. "A lot of that is a psychological thing."

At the same time, he added, sales of comparatively fuel-efficient cars, such as the Chevrolet Malibu and Cobalt, are stable.

Tom Libby, senior director of industry analysis for the Power Information Network, said higher gas prices have been a factor for the slowdown, although he predicted there won't be a total rejection of large vehicles until pump prices hit $3 per gallon.

Jesse Toprak, director of market and pricing analysis at Edmunds.com in Santa Monica, said the effect of pump prices has been blunted by GM incentives of up to $6,000 per unit on big vehicles. "There really isn't a one-to-one correlation," he said, of the rising gas prices and declining sales.

Rebates have failed to overcome another key problem with the automaker: a lack of new offerings in the face of stiff competition, particularly from foreign auto makers.

This is especially the case in two categories: fuel-efficient car-based SUVs and so-called crossovers, which combine the characteristics of cars and trucks. Among the competitors: Honda's Pilot and CRV and Toyota's Highlander, both popular car-based SUVs, and Nissan's trendy Murano crossover.

"There are an increasing number of alternative models for these consumers to choose," said Libby. "GM, frankly, is a little bit behind."

The company has introduced the Chevrolet Equinox, a crossover model, and dealers hope it's a first step to a better lineup. "I think they are late to the party, but they are getting there," Herold said.

Some maintain that their sales have bucked the overall downturn as buyers continue to ignore the rising gas prices.

"People buying a car for $16,000, $17,000--they are the people who are more gas conscious," said Roger Cowan, sales manager of Community Chevrolet in Burbank, who said that sales have risen about 10 percent this year. "People buying the big SUVs, they are not really worried about gas prices."