DETROIT (Dec. 21, 2000)—Wolf!
Economists and other industry watchers predict U.S. auto sales will decline next year. Just as they predicted last year, for 2000.
They were incredibly wrong about 2000 sales. But this time, they insist, the wolf really is at the door.
Sales forecasts for 2001 from nine analysts interviewed for this report averaged 16.2 million light vehicles, down 6.9 percent from an estimated record of 17.4 million this year.
Although that would be a decline of 1.2 million units, no one is sounding the alarm. "That´s still a great number," said Ellen Hughes-Cromwick,Ford Motor Co. manager of corporate economics. Ford expects 2001 light-vehicle sales of 16 million to 16.5 million units, she said.
Although some slowing is likely, the U.S. economy is expected to stay strong in 2001, growing about 3 percnt.
"I see no red lights," said Van Bussmann, DaimlerChrysler corporate economist. Many forecasters have predicted a so-called "soft landing" for auto sales and the economy in general for six straight years. But the stock market, the dot-com economy and the auto makers themselves made mincemeat of those conservative forecasts.
This year U.S. light-vehicle sales will set a record for the second straight year: an estimated 17.4 million units, vs. 16.6 million in 1999. It took 13 years to beat the old record of 16 million, set in 1986.
By the end of 2000, customers will have bought almost 80 million light vehicles in a five-year stretch—an average of 16 million a year—vs. about 68 million in the five years up to and including 1986.
"People have bought an awful lot of cars. I don´t think there are that many people left," said Cynthia Latta, chief U.S. economist for Standard & Poor´s DRI in Lexington, Mass.
DRI has done better than most in predicting sales the past two years, but even its forecasts fell short of actual sales. DRI´s 2001 forecast is 16.1 million light vehicles.
"What we have is a less exuberant stock market than we had before," Latta said. Oil prices are relatively high now, but they are expected to moderate in the spring. DRI also expects the U.S. Federal Reserve Board to cut interest rates next year to stimulate the U.S. economy.
The auto makers helped negate their own predictions for 2000 by tearing up their sticker prices.
"This was the year of the great price wars," said Diane Swonk, chief economist for Chicago-based Bank One Corp. The bank expects 2001 light-vehicle sales of 16.5 million.
"The reason I think sales will be slow, but remain at a heightened level, is that Main Street is in very good shape, even though Wall Street took it on the chin this year," she said.
Incentives have grown from an average of around $800 per vehicle in 1996 to an estimated $2,600 this year, based on a year-to-date, sales-weighted average for the traditional Big 3 brands, according to Mr. Bussmann at DaimlerChrysler.
He said DaimlerChrysler is spending $2,650 per vehicle on incentives, vs. an estimated $2,525 per unit at GM and $2,596 for Ford.
That points to the obvious. While incentives have sparked demand, said Ms. Swonk, they have cost the industry a lot of money.
"That´s how you get record vehicle sales, yet auto makers are being hammered (on profits)," she said. "Zero down and zero percent financing in an environment when interest rates are rising is pretty expensive stuff."
Jim Meil, chief economist for Cleveland-based Eaton Corp., says two powerful forces are at work in the marketplace.
"The (automakers) say they can´t increase incentives because they have to make money. The customer says, ´We´ve got them built into our pricing parameters,´ " he said.
"To increase incentives, even in the face of a declining market, might sound attractive to the marketers, but I think the word in Detroit now is to preserve profits," he said.
Eaton´s 2001 forecast of 16.2 million light vehicles depends on a moderation in oil prices; a cut in interest rates next year; and continued price restraint, he said.
Mr. Henry writes for Automotive News in which this article originally appeared.