Light-vehicle sales in 2000 should fall slightly from this year's record pace but are likely to top 16 million units for the second straight year, according to forecasters.
That would make 2000 the industry's second-best year ever.
Analysts expect 1999 sales of around 16.9 million light vehicles, about 8.5 percent ahead of last year and about 1 million units more than the previous record, set in 1986. Through November, sales are up 9.1 percent over a year earlier to 15.6 million units.
'The economy has fooled us and sustained its growth longer than we expected,' said Chris Hostetter, corporate product planning manager for Toyota Motor Sales U.S.A. Inc.
Or as Mustafa Mohatarem, General Motors chief economist, admitted: 'Boy, did I miss the market!'
He had a lot of company. Sales this year beat most year-ago forecasts by 1 million - and even 2 million - units.
Most analysts over the past four or five years have been cautious in their yearly forecasts, calling for sales to fall, but only slightly. For that matter, they are saying much the same for 2000.
Forecasters admit they did not foresee the combination of factors that would make auto sales explode in 1999 - low interest rates, growing disposable income, a booming stock market, cheap gasoline, rising real estate values, high incentives and price restraint.
Detroit-based Comerica Bank estimated that the average new vehicle cost only 23.4 weeks of income for the average U.S. family in the third quarter of 1999. David Littmann, Comerica chief economist, said that is the lowest level since 1980.
Diane Swonk, chief economist for Chicago-based Bank One Corp., said Americans have a lot of money in their pockets because of full employment and low interest rates.
'They're offering signing bonuses and benefits at McDonald's. What an extraordinary time this is!' she said.
She said mortgage refinancing generated a lot of cash in 1999. Homeowners who refinanced their homes at a lower interest rate could take out a bigger mortgage, keep their monthly payments the same and still have money left over, Swonk said.
At the same time, automakers continue to get better at cutting costs, and/or passing costs on to suppliers, said Lincoln Merrihew, auto industry analyst for Standard & Poor's DRI in Lexington, Mass.
Cost-cutting has enabled automakers to add what DRI calls 'stoptions,' for 'standard options.' That is, features that used to be optional but are now standard.
'The miracle is, they all happened at the same time,' Merrihew said.
'We call it, `The Smokey Robinson & the Miracles Effect.' No one factor explains it (record sales), but in unison, and in harmony, the effect is greater than the individual performers,' Merrihew said.
He was one of the few forecasters last year to predict a new sales record this year. Even so, his year-ago forecast was still short by around 500,000 units.
Beating the 1986 record is an even bigger achievement than it appears because Americans are keeping their cars longer and because sales in the five years leading up to 1999 have been especially strong. This is the fourth year in a row above 15 million units, and the fifth in the past six years.
The industry sold 75.7 million light vehicles in the five years before 1999, compared with a total of 67.5 million in 1981-85. That is a major reason why it took 13 years to beat the old record for a single year.
'There is an attitude that says, `There are more people and more households than there were in 1986 so, yeah, you should sell more cars than in 1986,'' said Van Bussman, corporate economist for DaimlerChrysler Corp., the North American operations of DaimlerChrysler AG. 'But more vehicles are being kept into old age than before.'
Scott Merlis, auto industry analyst for Wasserstein Perella Securities Inc. in New York, said that in 1998, 37.9 percent of the cars on the road were 10 or more years old, compared with 32.4 percent in 1990.
BACK TO THE DRAWING BOARD
Demand has been so strong for so long that some forecasters are cautiously rethinking some of their basic assumptions.
'Auto sales are starting to deviate from the traditional economic indicators,' Merrihew said. 'When the economy goes up, new-home sales and housing starts go up. When the economy goes down, they go down. But auto sales may start to be different, almost like computers, where every year you get more features, there's plenty of demand and yet the price comes down.'
Bussmann of DaimlerChrysler said he has redrawn his expectations for the industry's trend line. For instance, he said, the average number of vehicles per U.S. household is headed toward two at a sharper slope than it was five years ago.
'Fundamentally - and we've been talking about this for a few years now - we are into a third industrial revolution. We mostly talk about the information technology/ computers revolution, but it's also biotech, biomechanics, natural science,' Bussmann said. 'The long-term, sustainable, noninflationary growth rate of the economy has been raised, and along with that comes a higher trend line of new- vehicle sales. That's going to be seen as a higher number of vehicles per household and higher scrappage rates.'
If sales fall as expected next year, analysts say it will be because the factors that made sales so high in 1999 may be absent or less potent in 2000 as opposed to any particular bad news expected next year.
Still, interest rates are already up a bit, and several analysts said they expect the Federal Reserve to hike rates again in 2000. Besides making auto loans and leases more expensive, rising interest rates are also pinching off mortgage refinancing.
'The economy is going to slow from a torrid pace, but it is still going to slow to a decent pace,' said Martin Zimmerman, Ford Motor Co. vice president of governmental affairs. 'We used to think anything above 15 million was a good year.'
Swonk at Bank One put it this way: 'There's not as much frosting (in 2000), but you're still left with a pretty sweet cake beneath it.'