DETROIT - Fallout from the world's economic turmoil will slow U.S. auto sales during the remainder of 1998 and throughout 1999, many auto industry and Wall Street economists now agree.
Salomon Smith Barney, for example, has cut its calendar 1999 forecast for U.S. light-vehicle sales to 14.3 million units, from an original estimate of 14.8 million units, said Mark Rowen, an analyst with the firm in New York.
'We are calling for a slowdown in GDP to about 1.5 percent in 1999. We believe that will impact auto sales next year,' Rowen said.
To be sure, there is no consensus. Some economists, such as Michael Ward of PaineWebber, argue that 'there is no fundamental reason why U.S. auto demand should go down.'
But to increasing numbers of economists, fewer exports, more imports and a slackening in profit growth caused partially by price pressures add up to a slowdown in U.S. consumer spending.
'We're slowing down because of what is happening externally,' said Van Jolissaint, assistant corporate economist at Chrysler Corp.
The weakened sales pace will hit the industry in the fourth quarter of 1998, he said. At the same time, automakers face continuing pressure to offer sales incentives and hold the line on prices.
Chrysler forecasts a fourth-quarter U.S. annualized sales rate of 14.8 million light-vehicle units, down from a sales rate of 15.3 million in the first nine months of 1998, Jolissaint said.
In calendar 1999, light-vehicle sales in the United States will total 14.8 million units, compared with an anticipated 15.2 million units in 1998, he said.
Chrysler's forecast assumes the Federal Reserve Board will stimulate the economy by cutting interest rates at least once more. The central bank trimmed key interest rates by one-half point in two steps in September and October.
Ford Motor Co. would not issue a specific sales forecast nor disclose its assumptions on interest rates. But the automaker agrees that it expects worldwide financial turmoil to suppress economic growth and weaken auto sales.
Ford expects the annualized sales pace in the fourth quarter to lag behind the first nine months of 1998, said company spokesman George Pipas. And 1999 industry volume is expected to fall below 1998, he said.
'We believe growth in the economy in 1999 is going to be less than in 1998. That will contribute to lower sales,' Pipas said. 'But it is still a healthy rate of sales. 1998 is likely to be the best year since 1988 for the industry.'
Like Chrysler, Ford expects U.S. light-vehicle sales to hit about 15.2 million units in 1998.
Signs of trouble
Worrisome changes in three leading indicators underlie Chrysler's forecast, Jolissaint said. Chrysler codes its indicators green, yellow and red - clear sailing, caution, trouble.
1. Consumer debt levels are flagged a cautionary yellow.
'Debt levels are high. If there is a retrenchment in confidence, people would likely increase savings to work off that debt,' he said.
2. The spread between long-term and short-term interest rates also is rated yellow.
'Since World War II, if the yield curve inverts and stays that way for more than a month, it has always been followed by a recession about 12 months later,' Jolissaint said. 'The yield curve is not inverted, but it is real flat right now.'
3. The gyrating stock market is posted yellow, but is 'ready to go red' in Chrysler's warning system, Jolis-saint said.
'A recession is not in our forecast,' Jolissaint said. 'In terms of risk, the chance is maybe 30 percent and clearly rising.'
Ford's Pipas points out that U.S. economic fundamentals remain favorable.
'Consumers have a pretty healthy attitude,' he said. 'And why not? They have jobs, their income is growing relative to inflation and interest rates are low.
'The rate of growth experienced in the first half of 1998 is not sustainable. But it is still a healthy pace,' Pipas said.
Fears about the future
Consumer confidence surveys indicate people are beginning to worry about tomorrow, but are not yet upset about today, Pipas said.
'Consumers feel as good about their present situation today as they did in June, which was a 29-year high,' he said. 'It's next year they are getting a little uncomfortable about. But how they feel about today governs whether they buy a car or truck today.'
Indeed, General Motors expects the auto industry to weather the current financial turmoil better than other segments of the economy. GM expects additional interest rate cuts to provide sufficient economic momentum to protect auto sales.
'Clearly, the U.S. economy is going to slow because of reduced exports,' said Mustafa Mohatarem, chief economist at General Motors. 'To offset that slowing, we expect the Fed will keep cutting interest rates to sustain economic growth. We expect autos to remain one of the strongest sectors of the U.S. economy.'
GM expects total vehicle sales, including heavy and medium trucks, to reach 15.5 million units in 1998. Next year, he added, will produce total vehicle sales of '15 million plus.'