Big 3 Sales Drop, but Are Still Better Than Expected

Aided by aggressive sales incentives, auto manufacturers reported better-than-expected sales in March, providing evidence that there is still strong consumer demand for cars and trucks despite the slowing U.S. economy.

Overall auto sales declined 4.2% last month from March 2000, and first-quarter sales were down 5.8% from the same period last year. But the drop-off from 2000’s torrid sales pace was smaller than analysts had predicted.

Last year’s first quarter set the tone for a record year of 17.4 million cars and light trucks sold. Despite the slowdown, last month’s sales pace projects to 17.1 million units in 2001, which would be the second-best year ever.

General Motors Corp. sales fell 4.8% in March. Ford Motor Co.’s sales were down 12.6% for the month, and DaimlerChrysler’s Chrysler Group sales declined 10%.

For the first quarter, GM sales fell 6.9%, Ford was down 11.8% and Chrysler Group fell 12%.

While most import brands continued to gain ground in both sales and market share, the declines for the traditional Big Three were not as severe as experts had thought, thanks partly to low interest rates and rebates of $3,000 or more.

“Industry sales have held up better than expected despite a backdrop of economic uncertainty, and we think this trend will characterize all of 2001,” said Bill Lovejoy, group vice president of GM’s North America vehicle sales, service and marketing.

But one concern for auto makers is that the heavy incentives they are offering are a drain on profits. Such incentives are a major reason the Chrysler Group lost $1.7 billion last year.

Though Ford and Chrysler sales fell by 10% or more from March 2000, that year-ago month was the best Ford ever recorded. It was Chrysler’s best March as well, so declines were not surprising.

Chrysler’s March sales actually were up for a third consecutive month from their levels of late last year. “We continue to gain momentum on a month-to-month comparison, which is crucial coming into the spring selling season,” said Gary Dilts, Chrysler’s senior vice president for sales. “The best barometer for momentum, however, is dealer orders, which are steadily moving up.”

So is consumer confidence, according to the Conference Board and the University of Michigan, which issue monthly consumer confidence bulletins.

“The economy is taking a breather; it’s not in recession,” said David Littmann, chief economist for Comerica Bank in Detroit.

Last year’s first quarter was fueled by a number of unusual factors, including the “wealth effect” from the stock market, an increase in federal tax refunds, corporate bonuses and profit-sharing, as well as lower energy prices, Littmann said.

“To be down just 6% in the absence of all those factors is startling,” he said. “It shows the continuing strength of the consumer sector, which is five-eighths of the economy.”

The Midwest is also coming out of the downturn ahead of the West Coast, according to Littmann. “The Midwest is one of the first major regions to get tanked by an ‘old-economy’ decline and one of the first to stabilize” when interest rates come down, he said.

Michigan car shopper Mark Stock said concerns over the economy “aren’t impacting our decision on a car at all.” The 44-year-old Stock and his wife Nancy are looking to replace their 1990 Subaru Legacy wagon and were checking out the new Ford Escape SUV at Varsity Ford in Ann Arbor.

“We’re a long way from retirement, and that’s what we’re aiming for,” said Stock, who works with a commercial construction business. “We have a lot of money in mutual funds and I think the stock market is still a safe place to be.”

A sampling of Southern California car shoppers showed mixed optimism.

The graphic design business has been good to Todd Waller, 23, who has his own company in Camarillo. That’s why he chose the high-performance M5 sedan over the smaller M3 coupe at Santa Monica BMW on Tuesday, even though an eye-popping $25,000 dealer markup brought the price close to $100,000.

“We’ve had a couple of clients pull out of the state because of the energy crisis, but we’re still grossing in the five digits monthly,” said Waller, who said he’s thinking about giving his BMW Z3 roadster to his girlfriend.

But Tom Ruddy, an investor from Manhattan Beach, was less enthusiastic after his broker told him one of his stocks had hit an all-time low. “People want to be the first on the block to have one of these [an M3], but not me, not at $15,000 over the sticker price,” he said.

Over at Rydell Automotive Group on Van Nuys Boulevard in the San Fernando Valley, Jody White, 24, and Tracie Sanders, 31, were looking at a new Chevrolet Blazer. Sanders bought a new Chevy Tahoe SUV at Glendora Chevrolet a month ago and White was about to buy the Blazer Tuesday. They both cited low interest rates as a reason for buying now, plus dealer incentives, which knocked about $3,500 off the list price of the Tahoe.

“The incentives and the special financing still bring them in,” said Erik Zuniga, a Rydell salesman.

Oscar McCallick, a salesman at Volvo of Orange County in Santa Ana, is less sanguine. “We are noticing a slowdown, no question about it,” he said. “There’s no question the [stock] market is scaring some people.”

But one of his colleagues, sales manager Vinne Panariello, is less worried. The last few years have been “spectacular” for the industry, said Panariello, who’s been selling cars for 24 years. At the moment, business is good though not great, he said, nothing like the beginning of the last recession in 1991, when things were “100 times harder.”

Among the major imports, Toyota was up 11.4% in March to its best-ever month on the strength of its light trucks and luxury Lexus vehicles.

“Clearly, the economic slowdown has not impacted all segments and all manufacturers,” said Jim Press, Toyota Motor Sales’ chief operating officer.

Honda was up marginally in March by 1.4%, but Nissan sales were down 0.5%. Mazda surged 20.3% in March and 23.1% for the quarter, led by strong sales of its new Protege sedan and Tribute SUV.

Mercedes-Benz sales rose 3.1% in March, while BMW was up 4.7%. Volkswagen/Audi sales, however, slid 1.3% for the month.

Jones reported from Detroit and White from Los Angeles. Times staff writer Leslie Earnest contributed.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

U.S. Auto Sales Slowdown

Here are U.S. sales and market shares of cars and light trucks listed by auto groups and their wholly owned subsidiaries

for March, the change from a year earlier and for 2001

year to date.

*

Sources: Autodata Corp., Reuters