Auto Sales Roll for 5th Year, but Some Expect a Downshift
Strong December and annual auto sales figures being released this week show that the industry remains in high gear for the fifth consecutive year, though worries are emerging that the joy ride may soon be over.
On Tuesday, DaimlerChrysler and Ford Motor Co. posted better-than-expected December sales, boosted by heavy discounts and strong demand for light trucks. General Motors Corp. also is expected to report strong sales today.
When final tallies are in, U.S. auto sales are expected to have revved past the 15.5-million vehicle mark. That would be the second-highest ever, surpassed only by the 16 million units sold in 1986, when the impending luxury tax prompted a buyer rush to showrooms.
“This market is hot,” said Roy Roberts, GM’s vice president of sales, service and marketing, in an interview at the North American International Auto Show, “though we do see it dampening a bit this year.”
The performance surpassed the industry’s own forecast of 14.7 million to 15.2 million vehicle sales and was achieved despite lengthy strikes against GM and financial jitters caused by the Asian economic crisis.
The robust December results cap a strong fourth quarter, with sales running at a seasonably adjusted annual rate of more than 16 million vehicles. As they have all year, sales of sport-utility vehicles and pickup trucks led the way.
DaimlerChrysler said Chrysler’s car sales were flat for the year, while light trucks increased 13%. Chrysler’s overall sales increased 7% last month over the year-earlier period and 9% for the year.
“Sales went right through the roof last year,” said James Holden, vice president for North American sales and marketing.
Ford sold a record 2.3 million light trucks, a category that includes SUVs, pickups and minivans. Its overall sales climbed 6.8% in December, though just 1.8% for the year--a reflection, in part, of the discontinuance of several poor-performing car lines.
Detroit is optimistic that the good times will continue to roll. Auto sales, a closely watched barometer of the nation’s economic direction, are benefiting from low inflation and interest rates as well as strong job growth, household income and consumer confidence. Sticker prices also are being held in check by stiff competition.
“There is every reason to believe that auto sales will remain strong,” said G. Mustafa Mohatarem, GM’s chief economist.
Despite such ebullience, there may be potholes in the road ahead. Among the concerns are potential production disruptions stemming from national contract negotiations with the United Auto Workers.
There also is fear that continued high rebates and incentives--averaging $1,200 a vehicle--have pulled sales ahead. If consumer confidence is jolted, a payback period could ensue, leaving showrooms filled with unsold vehicles.
“Everybody is kind of looking over their shoulder wondering when this will end,” said Richard Wagoner, GM president and chief operating officer.
Still, he expects 1999 to result in healthy sales of about 14.7 million to 15.2 million cars and light trucks, a range with which most auto analysts and forecasters agree.
Whatever this year holds, 1998 stands out for a number of interesting milestones:
* Trucks outsold cars for the first time on a monthly basis in November and could do so for all of 1999. Car sales slipped 2% last year, while SUV sales jumped about 15% and pickups 7.5%.
* The truck craze is prompting the emergence of crossover vehicles that blend car and truck features, such as the Lexus RX300, and hybrids that combine elements of SUVs and pickup trucks, such as Ford’s Explorer Sport Trac, which was shown this week at the Detroit auto show and will hit showrooms early next year.
* The term “Big 3” became an anachronism after the merger of Chrysler and Germany’s Daimler-Benz. The merger is expected to prompt a wave of consolidation this year. Ford, equipped with a $23-billion cash horde, is a likely acquirer, though it continues to deny any impending deals.
* Vehicle prices held steady for the first time in half a century. In many cases, prices were lowered despite the addition of new equipment. The auto makers offset the lower prices with aggressive cost-cutting. Global overcapacity--estimated at 20 million units--is prompting the pricing pressure.
* Ford’s Lincoln division, attracting new buyers with hulking SUVs, surpassed GM’s Cadillac unit as the top U.S. luxury maker for the first time since 1950. Ford moved the Lincoln and Mercury divisions to California, a first for a Detroit auto maker, in an effort to reinvigorate the brands.
* European makers continued a strong U.S. rebound. Mercedes sales soared 39%, and BMW was up 7%. Volkswagen made the most noticeable gain--overall sales rose 59%--with the highly successful introduction of the New Beetle.
* Japanese makers Toyota Motor Corp. and Honda Motor Co., which report sales today, continue to gain market share for cars while entering the domestic makers’ truck stronghold with highly competitive products like the Toyota Tundra full-size pickup and the Honda Odyssey minivan.
Hopes for another good year are largely pinned on the solid fundamentals of the nation’s economy. But analysts note that there are wild cards that could throw a curve to the auto makers.
One big question is whether GM, Ford and Chrysler can reach a new three-year or longer labor contract with the UAW without a strike. Talks begin this summer, with a settlement deadline in the fall.
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Hot Wheels
Auto makers racked up sales of about 15.5 million new cars and light trucks in the United States in 1998, the second highest total ever. U.S. car and light trucks in millions:
1998: 15.5* million
* estimated
Source: Autodata
