NEW YORK - The dip in October auto sales spooked Wall Street investors already made jittery by high incentives, high inventories and, worst of all, a possible glut of light trucks.
Light-vehicle sales in October fell 1.5 percent below a slow year-ago month, and inventories shot up to a 69-day supply as of Nov. 1, from 58 days a month earlier. The October sales decline was the second year-to-year decline since July 2000 and only the third time that sales fell below the year-ago month since a strike at General Motors in 1998.
After the release of the October sales numbers, Gary Lapidus, auto industry analyst for Goldman Sachs & Co., cut his 2001 earnings estimates for GM and Ford Motor Co.
In his report, issued Tuesday, Nov. 7, Lapidus also downgraded the two stocks from 'recommended' to 'market outperformer.' The analyst started preparing the 125-page report earlier, but the timing seemed to magnify the dip in sales.
'It's just supply and demand,' Lapidus said in the report. He estimated that light trucks today account for 120 percent of former Big 3 global operating profits, offsetting losses in most car segments, but he warned that could change.
'Falling demand will collide with rising light-truck supply,' he said.
GM sales bucked the downward trend in October, gaining 6.9 percent with the help of heavy incentives. Nevertheless, GM shares fell nearly $4 to $57 on Tuesday, Nov. 7, after release of the Goldman Sachs report, although they rose slightly to $57.88 on Thursday, Nov. 9.
Ford fell $1.44 to $25 on the report but closed Nov. 9 at $25.44. Lapidus did not change his ratings on DaimlerChrysler, but he included DaimlerChrysler in his criticism.
Spokesmen for Ford, GM and DaimlerChrysler all agreed last week that the reaction to October sales was exaggerated.
'There are signs of moderating demand,' said Paul Ballew, general director of global market and industry analysis for GM. 'That is legitimate. But we don't anticipate a dramatic falloff.'
But the three automakers also agree that sales next year will fall by about 1 million units, or around 5 percent, to about 16.5 million light vehicles. The predictions assume slightly slower U.S. economic growth and incentives at or slightly below today's levels.
'It would be overreacting to look at the October sales rate,' said George Pipas, Ford sales analysis and reporting manager. 'But it is fair to observe that the last couple of months have been supported by some fairly generous incentives.'
A MATTER OF MANAGEMENT
This year's sales should easily top last year's record 16.9 million light vehicles. That will be five consecutive yearly increases and eight in the last nine years. Pipas pointed out that he and other analysts have predicted that sales would fall for the last four years, and so far, they have been wrong.
'One of these years, I'm going to be right,' he said.
On Wednesday, Nov. 8, Moody's Investors Service cut its outlook for DaimlerChrysler from 'stable' to 'negative,' citing the highly competitive North American market. Moody's did not change its credit rating for DaimlerChrysler, which could have affected Chrysler's cost of funds.
Van Bussmann, DaimlerChrysler corporate economist, agreed that profits are threatened, but he said the threat does not require radical changes.
'The industry can't keep pumping out 17 million-plus a year, as a normal selling rate. It's going to have to back down,' he said.
But, 'You have to trust that you can manage incentive numbers so that demand doesn't fall off the edge of a cliff.'