Automakers say that if U.S. sales fall to the 15 million to 15.5 million range next year, factories will keep working at close to current levels because:
With inventories low, and supply and demand in balance, the automakers could ax 0 percent financing when the programs expire, starting Sunday, Nov. 18. But many dealers say sales will tank if 0 percent financing dies.
General Motors CEO Rick Wagoner said GM still is pondering whether to extend 0 percent beyond Nov. 18. Although GM led the 0 percent charge, it is finding that only about 25 percent to 30 percent of buyers use the option. Other automakers, such as Mitsubishi, Toyota and Suzuki, have extended 0 percent loan programs beyond Nov. 18.
A pleasant surpriseThe program's effect on inventories has been unexpectedly good, Wagoner said.
He said the 0 percent financing promotion initiated by GM in the wake of the Sept. 11 terrorist attacks has brought the automaker's inventory down to "the lowest level in a long, long time." GM had a 45-day supply as of Nov. 1. Sixty days is considered normal (See chart, Page 35).
"I think we're well-positioned however it plays out," Wagoner said. He was interviewed as part of Automotive News' Talk from the Top series with global CEOs. A transcript of the interview will be published in the Nov. 19 edition and on automotivenews.com.
Barring a disastrous first half of 2002, GM expects to continue with brief factory shutdowns based on the sales of specific models, he said.
"We'll have short-term layoffs with down weeks, but I don't anticipate anything more than that right now," Wagoner said.
Overall, North American light-vehicle production is expected to rise 1.1 percent, to 8.3 million vehicles, in the first half of 2002. GM projects production of 2.6 million, up 4.4 percent; Ford predicts output at 2.2 million, up 0.5 percent; and DaimlerChrysler projects production of 1.4 million, up 0.1 percent.
Production revvedGary Henson, executive vice president of manufacturing for the Chrysler group, said the increased demand from 0 percent financing has prompted the maker to boost production.
The Chrysler group added overtime and Saturday shifts to increase the output of trucks; the Jeep Liberty, Dodge Neon and Stratus; and minivans, Henson said.
"We are doing this week by week, and we can't predict how much we increase for the month," Henson said. "If you had told me six weeks ago that at the end of October our (annual rate of production) would be 21.7 million units, I would have said you are crazy."
George Pipas, Ford Motor Co. sales analysis and reporting manager, cautioned that an extremely slow first quarter could change the outlook, but he said Ford's situation is similar to that of General Motors. Its inventory last week was about 625,000 vehicles, about 260,000 less than a year earlier. Ford had a 42-day supply on Nov. 1.
"Even if industry sales do decline, even if sales are at the 15 to 16 million range, you wouldn't expect to see production cuts to the extent that we did in 2001," Pipas said.
Ford moved in December 2000 to trim production as the industry's record sales year ended with slow sales and high inventories. Pipas recalled that at one point in January, all of Ford's North American plants were shut down.
Will sales tank?Dealers, meanwhile, say they want 0 percent financing deals around longer. Many said they fear sales will tank and stay slow once the low-cost financing programs expire.
"Zero percent wiped us out of 2001 models," said Dennis Rushing, Internet sales manager at McNamara Pontiac-Isuzu in Orlando, Fla. "We have one 2001 left, a Montana."
Sales at McNamara doubled from 83 new vehicles sold in September to 166 in October, leaving the dealership short on inventory, Rushing said. "It was our best month in two years. We normally have about 300 new vehicles in stock. We have around 125 on the ground."
Rushing expects the hot sales pace to skid rapidly once GM's 0 percent financing program ends Nov. 18, barring a renewal.
An automaker loses about $2,200 worth of interest on a $20,000 three-year, 0 interest loan compared with a 6.5 percent loan.
Buying frenzyEven though many hot-selling import brands such as Toyota didn't offer 0 percent for all models, they benefited from the flurry of buying.
"The special finance rates definitely moved the market," said John Kupec III, general manager of Gale Toyota in Enfield, Conn. "It made some people thinking of buying in the next six or 12 months say, 'We'd have to be foolish not to take advantage,' " Showroom traffic increased from 400 potential customers to 600 in October, he said.
Speaking to reporters in Las Vegas at the recent Specialty Equipment Market Association trade show, GM North America President Ron Zarrella said car sales were much stronger than GM had forecast. And some of GM's best-selling cars, such as the Impala, got a boost even though one wasn't needed.
"We thought trucks and SUVs would be very, very strong, but cars are stronger than we expected," Zarrella said. "The downside of running a program like this is that we didn't need to do it on the Impala. We are production-constrained. We could sell a lot more than we could make."