Optimists and pessimists alike are saying, 'There's never been a better time to buy a car or truck.'
Optimists are bullish because U.S. sales have never been so good for so long. Americans in 1999 will buy in the neighborhood of 15 million light vehicles - as they did in 1998, 1997, 1996, 1995 and 1994. Interest rates are low. Affordability is good.
Pessimists are concerned that the U.S. economy probably will grow more slowly in 1999. Prices have never been so flat for so long. This means incentives will remain high in 1999 and there will be no letup on prices or cost-cutting.
Both views are correct: There's never been a better time to buy a car or truck.
Most forecasters - Wall Street analysts and corporate economists for the former Big 3 alike - expect 1999 light-vehicle sales to decline from this year's expected 15.5 million, but only slightly.
'Unless there's an oil shock, or the Fed goes off the deep end and fiscal policies become too tight or too loose, 1999 is going to be kind of an average year. But that's not bad,' said Van Bussmann, corporate economist for Daimler Chrysler Corp., the North American operations of DaimlerChrysler AG, in a phone interview earlier this month.
He predicted 1999 light-vehicle sales of around 14.8 million. 'It's another good year, just not as good as this year,' Bussmann said.
That's not much of a decline, compared with the typical boom-and-bust cycle. The most recent bottom was only 12.3 million in 1991. Sales may be down in 1999, but they are not headed down that far.
'If sales go down by 400,000, it sounds like a big number. But if you look at it company by company, the nastiest knock for an individual company might be a decline of only 75,000 units,' said Joe Phillippi, auto industry analyst for Lehman Brothers Inc. in New York.
Despite strikes that virtually halted General Motors production for two months, sales in 1998 were stronger than most analysts expected. So-called loyalty coupons were a factor, hyping sales to record levels in the second quarter.
Sizzling demand for light trucks, which carry fewer incentives than cars, was another factor. Truck sales topped 50 percent of the light-vehicle market for the first time in November.
Through November, trucks made up 47 percent of the light-vehicle total. The last time total sales were this high, back in 1988, cars outsold trucks 2-to-1.
'I hope this (November truck share) once and for all defuses the notion that light trucks are just a fad,' said Maryann Keller, auto industry analyst for ING Baring Furman Selz LLC in New York.
'Why are trucks so popular? They have experienced more creativity as a product segment in the last 25 years than cars,' Keller told the Women's Automotive Association in a speech Dec. 10.
George Pipas, sales analysis and reporting manager for Ford Motor Co., concurs that creativity has become the key challenge for cars.
'Product innovation on the car side has not necessarily been things that the consumer can touch and feel and use,' he said. 'But product changes have made a big change on the truck side.'
Light-truck share likely will not stay above 50 percent in 1999, but it seems inevitable that it will pass that barrier in the next few years.
'I don't know how high it (truck share) will go, other than I don't think it will go to 100 percent. But who knows? Someday, 60 percent?' Phillippi said.
He expects light-vehicle sales of about 15.0 million in 1999, including about 7.3 million trucks, which would be a record.
PLENTY OF ACTION
This year was supposed to be the year GM would reverse its sliding market share. It didn't - partly because of the strikes, but also because GM's product mix still is slanted in favor of cars, Keller said.
She said GM's market share goal for 1999 is 32 percent, compared with 29.3 percent through Nov. 30.
'It doesn't seem like a heroic leap to get from 29 percent to
32 percent, but if you look at it product by product, GM has too much product in segments where the market is weak, and not enough where the market is strong,' Keller said.
In a telephone interview, GM chief economist Mustafa Mohatarem pointed out that GM's market share was up before the strikes. He said he has a 'quite positive outlook' for 1999 sales, ranging from 14.7 million to 15.2 million units.
'One of the reasons I'm so confident is that in a sense we've earned some flexibility. If something external happens to the U.S. economy, the Fed can cut interest rates or Congress can cut taxes,' to stimulate the economy, Mohatarem said.
Ellen Hughes-Cromwick, Ford Motor Co. senior corporate economist, matched GM's sales forecast.
'There are some softer trends in the economy, but vehicle pricing will remain relatively attractive. There is not much danger that the economy will weaken in a recessionary way in 1999,' she said.
'We do anticipate a fairly high level of incentive spending. Year-to-year, 1998 was fairly aggressive vs. projected 1999, but 1999 remains real aggressive.'
Forecasters gave the Federal Reserve Board high marks for cutting interest rates in late 1998, but global companies such as GM, Ford and DaimlerChrysler were worried about troubled overseas markets in Asia and Latin America and their effect on the U.S. economy.
'Because some markets are likely to contract, they are going to be taking fewer of our exports. That kind of weakens the part of our economy that is oriented toward exports,' said Bussmann, of DaimlerChrysler Corp.
INCENTIVES: NO ESCAPE
Analysts agree that the incentives that helped boost 1998 sales probably will not disappear in 1999, even though sticker price increases for the 1999 model year were virtually nil on average.
Scott Merlis, auto industry analyst for Wasserstein & Perella Co. in New York, estimated average incentives for Ford, GM and DaimlerChrysler would rise in 1999 to $1,700 a vehicle, compared with an estimated $1,400 in the fourth quarter of 1998.
'You have to recognize that the incentive expectation is one of the most important aspects of the forecast,' he said. Merlis expected 1999 sales to slow to around 14.7 million light vehicles.
'That's still very far from the 12.3 million (in 1991) we had in the last trough,' he said.
Norman Buchan, president of Chase Auto Finance, agreed that auto sales will go down, 'but not dramatically.' He recently was promoted to executive vice president of parent Chase Manhattan Bank, after Chase Auto loan and lease originations increased 25 percent this year, to a projected $12.5 billion.
Said Buchan: 'We expect the manufacturers to continue doing what they've been doing, and that is to add incentives to prevent a bigger decline in auto sales.'