N.A. output seen dropping in 1st quarter

'No need to panic' over retooling

Ford's first-quarter production is expected to rise 11 percent as output of the Fusion, shown, and Escape reach full speed.

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North American production is expected to decline 1.4 percent from 2012 levels to 3.9 million light vehicles in the first three months of 2013, but that's not a sign the economic recovery is endangered.

LMC Automotive, a suburban Detroit research firm, is forecasting a slight drop in production from the year-ago period, when Japanese automakers were replenishing inventories after the March 2011 tsunami.

Meanwhile, other automakers are cutting first-quarter production as they retool for new models.

General Motors, for instance, is readying its plants to assemble redesigned full-sized pickups in the spring, while BMW is preparing to produce a redesigned X5 crossover.

The industry's modest first-quarter production downturn will result from "a lot of little things," says Jeff Schuster, executive director of LMC's forecasting division. "There's no need to panic. Generally, inventories are in good shape, and overall we'll see demand strengthen a bit" in 2013.

Next year Schuster expects North American production to approach 15.8 million units, up 3 percent from about 15.3 million units this year. So the economic recovery remains strong, Schuster said.

Here are highlights of LMC's first-quarter forecast:

• Honda's output will drop about 9 percent from the very strong first quarter of 2012, to 420,000 units. In the first quarter of this year Honda was rebuilding inventory after the earthquake in Japan.

• Ford's output will jump 11 percent to 737,000 vehicles as production of the Fusion and Escape hit full speed.

• Chrysler and Fiat will reduce output 9 percent to 542,000 units as the partners retool the Toledo North plant to produce the successor to the Liberty crossover.

• Volkswagen's output will jump 25 percent to 211,000 units as its Puebla, Mexico, plant boosts production of the Jetta and Jetta sport wagon.

• GM production will decline about 12 percent to 762,000 units as it retools for the new Silverado and Sierra. GM's second-quarter production may slow a bit as well.

Senior analyst Joe Langley of LMC warns that GM may have produced too many full-sized pickups in anticipation of the shutdown for retooling.

"We would like to see either a greater sell-down process to begin, or for GM to reduce output ahead of the [new pickup's] launch in April," Langley noted in an e-mail.

Aside from that, automakers appear to be in solid shape entering 2013 because they kept a lid on inventories. As of Dec. 1, automakers in the United States had a 69-day supply of cars and trucks, according to the Automotive News Data Center.

That's down from 71 days on Nov. 1, and close to the 60-day supply considered to be ideal.

That will allow the industry to retain some momentum from a strong fourth quarter. If current production rates remain steady, as many as eight automakers could set North American production records in 2012.

LMC has projected peak production years for Toyota, BMW, Hyundai-Kia, Volkswagen, Honda, Nissan, Daimler and Subaru.

Rising production by transplant automakers offers added evidence that they are determined to avoid costly currency fluctuations that have plagued companies based in Japan and Europe.

It's also a strong indication that North America remains the auto industry's leading major growth market -- at least for now. And that's not likely to change in the first three months of 2013.

You can reach David Sedgwick at dsedgwick@crain.com.

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