Falling stock, empty showrooms tell of dark days

War planning and patriotic pep talks last week failed to obscure a hard fact: The automobile industry is in a significant downturn of uncertain duration.

The evidence - from slumping sales figures to depressed stock prices and grim supplier profit forecasts - is overwhelming.

Sales are down roughly 25 percent since Sept. 11, according to the National Automobile Dealers Association.

Yet, industry leaders say the unprecedented nature of events gives them hope the bounce back will be quicker than expected.

"The normal yardsticks and measures really can't apply here. We've never been here before," said Josephine Cooper, president of the Alliance of Automobile Manufacturers, representing 13 automakers. "I'm upbeat. I see we are a resilient people."

A Detroit pep rally

Likewise, Paul Taylor, chief economist for NADA, said the meager growth expected in the third quarter has been wiped out, and widespread layoffs and stock market volatility are big concerns. But he believes an upturn is possible in the fourth quarter.

"We may be pleasantly surprised," he said.

The positive signs he cited include declining interest rates and more international economic cooperation.

Still, the Bush administration, believing the health of the nation's economy is crucial to its aggressive plan to root out worldwide terrorism, was so concerned it dispatched Cabinet members to Detroit last week to rally industry leaders.

Union chiefs and company executives responded with promises of support and even more sales incentives.

Bush, understanding the consumer still is key, said in his Thursday, Sept. 20, address to Congress and the nation, "I ask for your continued participation and confidence in the American economy."

More layoffs ahead

But it is a hard sell, especially for the tens of thousands of potential new-car buyers, many of them in the airline industry, who suddenly are unemployed. More layoffs in that and other industries are expected.

"It is going to be extremely tough for corporate profitability," said Taylor.

Here is a sampling of the evidence of a downturn that accumulated last week:

  • General Motors began offering zero-percent financing on all of its vehicles to jump-start stalled sales. Ford Motor Co. then matched the plan.

  • Dealers interviewed by Automotive News said showroom traffic had slowed considerably and most customers were necessity buyers, not discretionary purchasers.

  • Declines in share prices of most automotive stocks exceeded 20 percent.

  • Supplier Visteon Corp. cut its third-quarter earnings and says it expects an after-tax loss of as much as $70 million, excluding any restructuring charges. The shortfall is a result of Ford's Sept. 15 decision to lower third-quarter production by 110,000 to 120,000 units.
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