Many dealerships remain confident about first quarter 2002 business. General Motors is boosting production in the first quarter, and inventories are generally tight.
Nevertheless, as businesses attempt to plan for the new year, some economic indicators point one way and consumers behave in another.
“I don’t think anyone has a real grasp of what’s going on right now,” said Nick Lobaccaro, industry analyst with Lehman Brothers in New York. “We’re seeing some conflicting activity.”
For example, on Wednesday, Dec. 5, Ford Motor Co. told analysts that troubling economic conditions are inflating losses at its Ford Motor Credit Co. operations, causing Ford’s corporate losses to rise. Chief among the troubles: rising personal bankruptcy filings and a 6 percent to 8 percent increase in repossessions of Ford vehicles for the first nine months of this year.
But at the same time, Ford tallied a 4.4 percent sales increase for November. The industry as a whole finished November 7.5 percent ahead of last November, with trucks — Ford’s high-profit business — delivering most of the growth.
Cutting a Ranger shiftDespite the encouragement, Ford is planning to cut back North American production by more than 8 percent in the first quarter. Among the volume cuts, Ford will drop the second shift at its Edison, N.J., Ranger assembly plant in February.
That should be terrible news for
Pete Postorino, sales manager at Malouf Ford in North Brunswick, N.J., not far from the Ford plant. Malouf does a brisk business selling to Ford employees and their families. But Postorino is upbeat.
“I don’t think we’re going to have any problem next year,” he said. “Our November was up 15 to 20 percent over a year ago. December’s looking good. January is always a slow month. Then it’s spring.”
The dealership is building up its used-vehicle inventory, a traditional retailer response to lean times for consumers.
Production cuts questionedBut the numbers aren’t dramatic, the sales manager said. Qualifying marginal consumers for loans is tough, but not that much tougher than a year ago. Ford said it planned to tighten credit requirements to reduce loan losses.
Not everyone is convinced Ford’s production cuts will pan out. Jeff Schuster, J.D. Power and Associates’ director of North American forecasting, thinks Ford’s inventories are too low to endure more cuts. “Quite honestly, I’m having trouble understanding how Ford can cut production any more,” Schuster said. “They’re very short on Taurus, Sable and Focus.”
The health of consumer credit represents another market contradiction: The rise in bankruptcies, bad loans and increased credit restrictions paint a scenario in which customers might find it harder to finance vehicles, possibly pushing more buyers into the used-car market. But there are mitigating factors at play, said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.
“The indications are that consumers are actually better off right now than they were a year ago,” Naroff said. “The confidence surveys suggest we’re beginning to see a rebound in expectations. Disposable income is up. Home heating prices are down. Fuel prices are down. Interest rates are lower. People are refinancing their debt, their mortgages, their credit cards, their home equity loans. They have money in their pocket. And as we have seen in the last couple of months, they clearly want to spend it.”
Even the frequent recent reports of manufacturing and white-collar layoffs have not caused automakers to back off the hot market fully.
Unlike Ford, General Motors expects to boost its North American production by nearly 8 percent, or about 93,000 vehicles, over first quarter 2001 levels. DaimlerChrysler is planning a 5.8 percent increase in the first quarter. That is the period when many have been predicting the market would recoil from the busy pace triggered by the use of 0 percent interest finance programs.
What happens next year?“It’s just hard to see right now how bad it will hit us next year,” said Stuart Angert, co-CEO of Remarketing Services of America Inc. in Amherst, N.Y., which tracks the industry and its impact on the used-vehicle market. “We’ve pulled forward all this business from next spring. What’s going to happen when 0 percent goes away? First quarter sales will have to come down. They have to.”
But if so, will the pain be industrywide or isolated to specific automakers and brands?
In Dallas, Mitsubishi dealer Don Herring thinks the pain will be limited to the Big 3. “I’m going to predict that our sales here will be up about 10 percent next year,” Herring said of his two Dallas stores.