Big 3 Worry Rate Hikes Will Curb Car Sales : Autos: Economists say six Fed increases haven’t hindered sales yet, but that a further boosting of interest could hurt.
The Big Three auto makers expect vehicle sales to continue rising for the next two years, but they worry that another interest rate increase early this year could hurt sales and damage the national economy.
Economists for Ford Motor Co., Chrysler Corp. and General Motors Corp. estimated Tuesday that sales will hit 15.6 million to 16.2 million vehicles this year, up from about 15.4 million in 1994. The industry projects car and truck sales for 1996 at 15.7 million to 16.8 million. Record sales of 16.3 million vehicles were posted in 1986.
“We haven’t yet approached (the sales) peak but should in the next couple of years,” said W. Van Bussman, an economist for Chrysler.
The economists praised the Federal Reserve Board for keeping inflation under control while keeping the economy growing at a moderate pace. Though the Fed’s six interest rate hikes in 1994 have not hurt auto sales, they said, that could change if the central bank raises rates again early this year.
“I feel the Fed should take a vacation for a while on interest rates,” said G. Mustafa Mohatarem, GM’s director of economics and the most cautious of the industry forecasters.
The auto industry’s views are weighed heavily by the Fed because the industry represents the largest portion of the manufacturing sector and is a major driver of the current national economic recovery.
The forecasts came at a meeting of industry analysts this week at the 1995 North American International Auto Show.
Whereas the auto makers presented a rosy outlook amid myriad new product introductions, the industry analysts were more cautious.
Paul Ballew, senior economist for the Federal Reserve Bank of Chicago, said the industry should experience modest near-term sales increases because of job and income growth and pent-up demand. But the industry is facing a serious profit squeeze and price constraints because of tough competition, he said.
“The good news is the sales are growing; the bad news is the competitive environment out there is just a preview of coming events,” Ballew said.
Jay Woodworth, president of the Woodworth Holdings consulting firm in Summit, N.J., said the industry is becoming more cyclical worldwide, more companies have weaker balance sheets than ever before, and global competition is growing.
“Not much time remains in the current cycle in the U.S.--maybe 24 months or so,” he said, adding that companies must put aside billions of dollars to survive the next downturn.
The Big Three economists, however, said the economy can continue to grow at a slow, steady pace for some time. Only an unforeseen political or economic shock would prompt another recession, they said.
In related areas, auto industry officials said that:
* The financial crisis in Mexico is likely to slow U.S. exports there. The economists said the peso was overvalued but that its devaluation was bungled. They believe the Mexican economy continues to be sound.
* Affordability is of growing concern to auto makers. The average price paid for a car in the United States now tops $20,000.