NEW YORK -- Bad winter weather, war worries, high fuel prices, and low used-vehicle prices have contributed to the slowing of North American auto sales in recent months, according to a report released Thursday by Standard & Poor's Ratings Services.
The slow sales pace has caused dealer inventory levels to spike above historical averages, and several vehicle manufacturers have indicated that they will reduce production during the second quarter of 2003, which will negatively affect the financial performance of auto suppliers, the ratings service said.
"Especially vulnerable are suppliers with high fixed costs or heavy customer concentrations among the Big Three automakers, whose sales have softened more than average and, thus, currently have a greater oversupply of inventory in the market," said credit analyst Martin King.
"The remainder of 2003 is expected to be very challenging for most auto suppliers. Slower sales will pressure profit margins and could lead to intensified pricing pressures as vehicle makers, struggling with their own profit issues, look for price cuts and ways to reduce content on certain vehicles," he said.
The report also noted that retail sales of new vehicles declined during the fourth quarter of 2002, after exceeding expectations for much of the year. Most auto retailers reported negative same-store, year-over-year sales and gross profit comparisons for their new-vehicle operations during the fourth quarter. Despite the slower pace of new-vehicle sales, most of the rated public dealerships are expected to remain solidly profitable in the first quarter of 2003.