Sales for the second half of 2001 look much stronger than originally expected, thanks to high incentives and growing volume for import brands.
Those factors are forcing analysts to raise their sales forecasts for the full year, but not everyone expects to benefit to the same degree.
The bad news for the Big 3 is twofold: First, the high cost of incentives; second, import brands likely will continue to gain market share, especially in light trucks.
As a result, Big 3 production plans for the second half look less robust than the outlook for total industry sales.
'Apparently, the manufacturers' willingness to offer incentives matches the customers' willingness to take advantage of them,' said George Pipas, sales analysis and reporting manager for Ford Motor Co. That implies a predicted second-half slowdown in sales will be less severe than expected, he said.
Ford's forecasters now expect industry sales for all of 2001 to be 'in the 17 million range' for total vehicles, including medium and heavy trucks, Pipas said. 'If you ask me, could it be higher than 17 million? Yes.'
That implies a light-vehicle forecast of around 16.7 million, up significantly from just six months ago. Ford's 2001 forecast was about 15.9 million light vehicles in January, but that has been raised as monthly sales turned out better than expected.
David Healy, auto industry analyst for Burnham Securities Inc. in New York, last week hiked his 2001 forecast by 300,000 to about 16.8 million light vehicles. On June 22, John Casesa, auto industry analyst for Merrill Lynch & Co. in New York, raised his forecast to 16.5 million light vehicles, from 16 million.
To put that in perspective, sales of 17 million for 2001 would be only about 2.2 percent behind the all-time record of 17.4 million last year, and ahead of the second-best year, 16,958,568 in 1999. Pipas stopped short of predicting 17 million light vehicles for 2001, but he said 2001 'could challenge' 1999 as the second-best year ever.
DaimlerChrysler and General Motors have raised their forecasts. DaimlerChrysler quietly has raised its forecast to about 16.5 million light vehicles. In January, DaimlerChrysler's 2001 forecast was about 15.6 million light vehicles. In January GM's forecast was in a range centered on about 16.5 million light vehicles. On Friday, June 29, GM raised its forecast to 16.7 million light vehicles.
Last week's one quarter of a percentage point cut in short-term interest rates should help sales improve. That was the sixth Federal Reserve rate cut in six months, for a total of 2.75 percentage points. Tax refunds also should help.
But Big 3 production plans for the second half are conservative.
Big 3 North American production for the third quarter is expected to be about 2.7 million units, 6.4 percent below the year-ago quarter.
Big 3 fourth-quarter production is expected to be about 3.1 million. That would be 5.2 percent ahead of the year-ago quarter, but production in the fourth quarter of 2000 was 15.4 percent below the fourth quarter of 1999. U.S. sales started falling below the year-ago month in October 2000.
Paul Traub, assistant corporate economist for DaimlerChrysler in Auburn Hills, Mich., said that Big 3 production plans are conservative in part because the domestic brands want to avoid excess inventory. But he acknowledged it also is because import brands will take a greater share of the total. In turn, that is partly because the present strong dollar makes dollar revenues more valuable in yen or euros. Importers can take more profits or cut prices, or even both.
'A lot of it is due to the strong dollar, which gives better pricing ability for Japanese and European products. There is a strong correlation between the dollar and share,' he said.
'The Big 3 relinquish share to imports, in a time of strong dollars.'
Staff Reporter Dave Guilford contributed to this report