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US auto industry suffers surging oil prices

American car makers face difficulties, having recently rolled out new models, only to see retail fuel prices nearly double.

Ford Motor Co and Chrysler LLC are betting they can return to profitability by selling new versions of their big pickups. The automakers didn't expect US gasoline prices to more than double before they got the trucks to market. At the Detroit auto show on Sunday, Ford rolled out its redesigned F-150, the best-selling vehicle in the United States for 31 years. Chrysler introduced its top seller, the Ram pick-up.

The companies were completing plans for both new models five years ago, when gasoline sold in the US for an average of $1.52 a gallon. Now gasoline sells for $3.16 a gallon, contributing to a 2.5% drop in US auto sales in 2007, the worst showing in a decade.

While Ford, Chrysler and General Motors Corp all are exhibiting fuel-efficient vehicles, they're stuck with decisions made years ago, said John Casesa, managing partner at Casesa Shapiro Group in New York. “Automakers are struggling to adjust to a new long-term reality of higher gas prices, but they have to sell today what they can make today,” he said.

A US housing slump and an economy that may be heading into a recession are weighing on the auto industry, injecting a dose of caution amid the glitz of the North American International Auto Show, where Ford used fireworks, strobe lights and country music singers to introduce the F-150.

Also looming over the industry are mounting concerns about global warming and the first revision of US fuel-economy standards in 32 years. On December 19, President George W. Bush signed a law that mandates 35 miles per gallon nationwide by 2020. That's about 40 percent more than current requirements. “Being a product planner in this environment is like playing a game of Russian roulette,” said Bill Reinert, national manager for advanced technology at Toyota Motor Corp's US sales unit.

Toyota is contributing to the pressure on Detroit automakers. Toyota City, Japan-based Toyota redesigned the Tundra pick-up for 2007, enlarging the truck so it's now a full- size competitor to GM, Ford and Chrysler models. Tundra sales soared 58% last year.

After dropping to 16.1 million cars and trucks in 2007, industrywide US sales may fall another 3.7% to 15.5 million, Lehman Brothers analyst Brian Johnson said in a January 11 note to clients. “We expect significant further weakness in US auto sales this year,” Johnson wrote.

GM and Ford shares aren't likely to rebound any time soon, especially if the US falls into a recession, Johnson said. In past recessions, automakers didn't come back until industrywide sales had almost bottomed out, he said. (China Daily)