DETROIT - U.S. automakers are bracing for the dreaded "CNN effect" -- the period when world events keep Americans glued to their televisions instead of out shopping for new cars and trucks.
With the start of U.S.-led war in Iraq, automakers and industry analysts expect a sales slump similar to what happened during the 1991 Gulf War. Since most auto sales happen at the end of a month, industry analysts say it is too early to make a definitive forecast for March, but several say sales could run at a seasonally adjusted annual rate (SAAR) of less than 15 million vehicles -- the weakest monthly pace in nearly five years.
"We believe the industry could be on track to see a SAAR with a 14 million handle on it, with April not positioned to see sales significantly better," said Bear Stearns analyst Domenic Martilotti.
Beyond March, the predictions become even harder. If consumers believe gas prices will remain high beyond a war, it could cause a shift toward smaller vehicles. It usually takes a car shopper six to eight weeks to buy, so falling traffic in dealerships today bodes ill for sales in April and May.
And the financial toll on automakers may depend on whether they respond with production cuts, as General Motors and Ford Motor Co. have so far, or if they unveil blockbuster incentives to woo buyers back.
GM has said it will cut second-quarter production 10 percent, while Ford has set its second-quarter schedule 17 percent below last year's output. But neither has changed their estimates for full-year earnings or total U.S. sales -- suggesting they believe any sales lost now could be made up later in the year.
"The market is being impacted by the uncertainty over the war, so until that issue gets clarified and squared away, I think we will see a relatively weak market where it doesn't really matter what you do," GM Chairman Jack Smith said in a speech in Tokyo on Monday.
"Once we see some finality to this situation in Iraq, we will see the market come back and we expect that incentives will be important."
THE WAITING GAME
GM led the industry in incentives for much of last year, a strategy that allowed it to increase profits and U.S. market share even as it cut prices. But incentives only work if they boost sales enough to cover their costs, and after about 17 months of non-stop promotion, many of Detroit's offers have lost some appeal.
February sales were down 7 percent from a year ago, even as total industry incentives rose 10 percent. Unlike the past several months, there has not been a mid-month escalation of incentives between Detroit's Big 3.
While GM was the first to launch 0-percent loans, such deals are now widespread. In addition to Detroit's Big 3, other automakers offering such deals include Toyota Motor Corp., Hyundai Motor Co. Ltd. and Mitsubishi Motors Corp. among others.
Cars and trucks have been one of the few large purchases U.S. consumers have been willing to make over the past year and with new vehicles accounting for roughly 20 percent of all retail sales, slower vehicles sales could be a bad omen for the rest of the economy.
Industry analyst Art Spinella of CNW Marketing/Research said his survey of consumers found many delaying their purchase by up to almost five months. He also found that floor traffic in dealerships was down almost a third from the same period a year ago and that 80 percent of the people who were shopping were there only out of absolute need.