DETROIT - Despite softening second-quarter sales, the auto industry will sidestep a downturn and may enter a stable period through 1999, said John Devine, CFO of Ford Motor Co.
Indeed, the U.S. auto industry may be free of its peak-and-valley business cycles, he said in an interview last week.
Devine also said Ford is cutting costs on every Ford vehicle line worldwide. And he reiterated the company's intention not to push the Taurus for the 1997 sales crown at the expense of profits.
'There is a good shot that what we are going to see over the next couple of years is not the downturn that we have seen in prior business cycles,' Devine said.
'What we are going to see is much more of a stagnation. We may be in the start of that. I'd look for more of it next year and in 1999.'
Ford is using a stable scenario for some of the company's business planning, Devine said. But it is still building cash reserves to guard against a downturn.
At the end of March 1997, Ford's automotive cash stockpile totaled $7.8 billion, $2 billion more than on March 31, 1996.
FLAT SINCE 1994
Chrysler Corp. also sees continued stability.
'I describe the state of the industry as basically flat since 1994,' said Van Bussman, Chrysler economist.
'As the economy continues to grow on a noninflationary trend, so will the auto industry,' he said. 'We are doing our planning for the next several years on the basis of 15.0 to 15.5 million units annually.'
Bussman's and Devine's figures include about 300,000 medium and heavy trucks.
'The Federal Reserve set us on this path in 1994,' Bussman said. 'They took the economy and the industry off the path of boom-and-bust and onto a more stable path.'
Instead of large volume swings, the U.S. industry may stabilize at about 15 million units annually, which includes medium and heavy trucks, Devine said.
'It is possible we could see a 15.0 million running rate for the rest of the year. That is weaker than we might have expected a few months ago. But it is still a pretty good number,' he said.
In January, vehicles sold at an annual rate of 15.9 million, dropping to 15.0 million in May, excluding medium and heavy trucks.
The auto industry has long been plagued by volume swings that cause havoc with profits and planning. For example, in 1992 U.S. car and light-truck sales reached only 12.9 million units, compared with 15.1 million units in 1996.
Even if the industry leaps off the cyclical treadmill, it could still be jolted.
'In the last 25 years the major changes in the business cycle have been driven by some major external event such as the Gulf war or a fuel crisis,' Devine said. 'That is still part of the question.'
NO SALES WAR
Devine also said:
Ford will take a charge in the second quarter for the five vehicle lines being discontinued at the end of the 1997 model year: the Ford Aerostar, Ford Aspire, Ford Probe, Mercury Cougar and Ford Thunderbird.
In 1997, Ford executives are not waging a sales war to win the Taurus sales crown. The company prefers to campaign for better profit margins, Devine said. 'After a lot of debate, the profit focus came out No. 1,' he said about the Taurus sales race. 'That has cost us some market share.'
Through May in calendar 1997, Ford's share of the U.S. car and light-truck market fell 0.3 percent to 25.2 percent.
Every Ford vehicle line worldwide has a cost-cutting target. New cost-reduction goals for 1998 and 1999 are being formulated now, Devine said.
In April, Ford said it was well on its way to reducing total automotive costs by $1 billion in 1997. Indeed, in the first quarter automotive costs were slashed $800 million from 1996 levels.
Said Devine: 'Material cost is about half of our cost base, so that is the one we go after first.'