U.S. auto sales will fall for the third consecutive year in 2003, according to a survey of economists and analysts.
Still, at 16.4 million units, that sales level would be the fifth best in U.S. history, the fifth consecutive year of more than 16 million in sales, and only 1 percent below the 2002 projection of 16.6 million.
So say 10 economists and analysts surveyed for the annual Automotive News economic outlook. Their consensus estimate for next year's light-vehicle sales is 16.4 million.
However, their projections come with some big assumptions that are dependent upon continued high sales incentives and relentless cost cutting. Slow but steady U.S. economic growth and continued low interest rates also are part of the scenario.
And the biggest ``if''-should it come to pass-is a short, successful war with Iraq.
Even if the projections prove to be on target, 2003 is shaping up as another year of what analysts call ``profitless prosperity.'' Auto dealers will like the strong sales, but incentives and cost-cutting will make profits elusive for auto makers and suppliers.
Auto companies declare they will continue offering incentives, no matter what, said Diane Swonk, chief economist for Bank One Corp. in Chicago.
Paul Ballew, General Motors Corp. executive director of market and industry analysis, said while 2003 forecasts are lower than 2002, sales of 16 million light vehicles are strong by historical standards. ``That's not a poor year saleswise, and that's not a poor year productionwise,'' he said.
According to Mr. Ballew, the pressure on pricing and cost cutting gets worse when industry sales volume declines. But good companies get the job done on costs and productivity and quality and grow even in a down environment. He insisted GM isn't solely to blame for the high cost of incentives, even though it is spending more than anyone else.
Consumers have learned to wait for 0-percent offers, said David Littmann, chief economist for Comerica Bank in Detroit. ``People may be poor, but they ain't stupid,'' he said.
He expects slow vehicle sales in the first quarter, assuming a war with Iraq occurs. If the war is short and successful for the U.S., Mr. Littmann expects auto sales to rebound for the rest of 2003.
``I think the economy is ready to take off because fiscal and monetary policy remain extraordinarily stimulative,'' he said.
Mr. Littmann is known for his often-cited ``Affordability Index.'' It calculates how many weeks of median family income it takes to buy the average-priced new car, taking into account incentives.
For the third quarter of 2002, that figure was 19.9 weeks, a full week less than the first two quarters of 2002 and the lowest figure since 1978. Mr. Littmann said financing rates were the lowest ever recorded for the index, coupled with gains in family income and declining new vehicle prices.
Based on data from car dealerships, J.D. Power and Associates estimates that incentives per vehicle now average about $800 in cash rebates or about $400 in the value of low-interest financing. Those figures are an average for all retail sales.
Because U.S. sales slowed in October and November, some analysts said they believe consumers are becoming immune to incentives. That is forcing auto makers to spend more on incentives to achieve the same effect.
John Casesa, auto industry analyst for Merrill Lynch & Co. Inc. in New York, said consumer confidence is key to whether customers respond to incentives.
``The fear is that consumers lose enough confidence to where they are not willing to buy, at any price,'' said Mr. Casesa, noting that consumer confidence fell that low in the last recession.
Or, as Ms. Swonk at Bank One put it: ``I suppose the biggest fear is that they (auto makers) get to giving cars away free-and still, nobody buys them.''