A Terrible Time For Carmakers

Automakers finish 2008 on a bleak note. Expect 2009 to be worse.

When a bailout from the government is the best thing that's happened to your industry all year, you know there's a problem. For the car business, it may be the only good news for a while.

General Motors (nyse: GM - news - people ), Ford (nyse: F - news - people ), Honda (nyse: HMC - news - people ) and Toyota (nyse: TM - news - people ) all reported December sales declines of more than 30% from a year ago, finishing off a bleak year that saw industry-wide U.S. sales drop 16.7% from 2007, to 13.5 million vehicles.

With an economy that's expected to get worse before it gets better, many analysts see carmakers having an even tougher time of it in 2009. Some see sales plunging to 10 million units or fewer--nearly double the percentage drop of 2008.

GM and Chrysler, each of which just pocketed the first installment of its combined $17.4 billion emergency government loan, saw December sales drop 31% and 53%, respectively. Neither has the luxury of putting its government money to use building brand strength, making factory improvements or any other long-term initiative. Times are too dire for that.

"The money is just to stay alive for the next few weeks," says Jesse Toprak, an analyst at Edmunds.com.

Other depressing sales reports from December: a 32% drop at Ford, 37% at Toyota and 35% at Honda. To make matters worse, in order to push cars off the lots, five of the six major U.S. and Japanese automakers increased incentive spending from November, according to Edmunds.com, with Ford setting a monthly record of over $4,000 per vehicle.

Only Toyota kept incentive spending flat from November, though the $1,995 it spent per vehicle was still almost twice the rate in December 2007.