| BUSINESSWEEK ONLINE : JANUARY 10, 2000 ISSUE | ||||||||
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| INDUSTRY OUTLOOK 2000 -- MANUFACTURING
Autos Having been blindsided by last year's red-hot auto market, forecasters are skittish about making predictions for 2000. But here's the middle lane: After increasing 7% in 1999 to a record 16.7 million vehicles, auto sales are likely to ease 4%, to 16.1 million units this year. The actual numbers from economists and auto analysts range widely, between 15.5 million and 16.5 million vehicles. But 16.1 million would still equal the second-best sales year in automotive history. DaimlerChrysler (DCX) corporate economist W. Van Bussmann has to laugh at the slowdown he's predicting: ''People around here would have given their left arm for that kind of market a few years ago.'' Besides, he figures the worldwide total for sales of all vehicles--including buses and trucks--will continue to climb, to 55.1 million vehicles, or a half-million more than last year. General Motors Corp. President G. Richard Wagoner Jr. is also upbeat. ''We think it's going to be another pretty strong year,'' he says. Any time a market shrinks, though, the fight for market share becomes fiercer. What worries Wall Street is the sense of denial among auto makers. ''Sales are going to decline, but everyone is telling us their profits are going to grow,'' says Morgan Stanley Dean Witter analyst Stephen J. Girsky. That's because auto execs believe they can cut costs faster than sales sink. But Girsky is skeptical. Detroit was losing ground to imports even while the market was expanding in 1999. Hanging on in a declining market will put prices and profits under the gun. Even at the height of 1999's buying frenzy, pressure on pricing remained intense. Auto makers relied on the deal du jour to move cars off lots. ''The price-cutting tells you that demand is not as strong as it looks,'' says Merrill Lynch & Co. analyst John A. Casesa. ''It has become much more of a 'want' than a 'need' market.'' And such discretionary spending can dry up quickly. The big fear is that declining sales could trigger an all-out war in rebates, lease deals, and cut-rate financing. When demand eases from 1999's fever pitch, carmakers with too much inventory are likely to slash prices further. Analysts and rivals worry that General Motors (GM), with a hefty supply of cars and trucks in late 1999, might be the first to blink. ''We have to carefully watch GM's inventory,'' says Koichi Amemiya, Honda Motor Co.'s executive vice-president for overseas operations. Still, forecasters are confident there are plenty of reasons for auto sales to remain healthy. They cite low unemployment, benign interest rates, and pricing pressure that is making cars more affordable than they've been in years. Americans feeling flush from bonuses or fat stock portfolios continue to snap up luxury cars and option-loaded big sport-utility vehicles. So why won't 2000 match last year? ''Some of the tailwinds of '99 are going to go away,'' says Lehman Brothers Inc. analyst Nicholas Lobaccaro. Mortgage refinancing, which yielded cash windfalls for consumer spending, has slowed; the stock market is more unpredictable, and gasoline prices are higher. In fact, a sharp spike in gas prices is Detroit's nightmare, since most profits come from gas-guzzling SUVs and big pickups. December's $1.27 a gallon is a far cry from February's 91 cents low, but apparently not yet enough to frighten buyers away. ''Frankly, we thought there might be some pullback,'' admits Ford Motor Co. CEO Jacques A. Nasser. But ''there hasn't been any impact yet.'' He figures $2 a gallon might well be a threshold for consumers to reconsider truck purchases.  TURF BATTLE. Barring such a gas-pump shocker, 2000 is expected to be the first full year that trucks (a category that includes minivans, SUVs, and pickups) outsell passenger cars. But tough new competition from Japanese, South Korean, and European models is starting to dent Detroit's profit haven. Thanks in part to new luxury SUVs, Mercedes and Lexus surged past longtime leaders Lincoln and Cadillac to the head of the luxury pack. Import pressure will only intensify this year as Honda (HMC) raises the output of its popular Odyssey minivan and introduces an Acura SUV.To defend its truck turf, DaimlerChrysler, whose industry-leading minivans have lately been losing ground, will introduce a new generation of vans this fall. GM hopes to advance in the lucrative large SUV market with its new Chevy Suburban and Tahoe and GMC's Yukon lines. GM even promises to zoom past archrival Ford (F) in big pickups for the first time in six years. Detroit will also finally respond to the latest import craze: crossover vehicles. These hybrids typically combine a car chassis with SUV height and four-wheel drive. Ford's Escape and Pontiac's Aztek are aimed squarely at this market, currently dominated by the Japanese. And Chrysler's PT Cruiser combines the roominess of a minivan with the economy of a small car. Domestic designers also have some other crossover tricks up their sleeve. Dodge's Dakota Quad Cab and Ford's Explorer Sport Trac offer a roomy, SUV-size passenger cab with a pickup bed in back. Lincoln's Blackwood offers an upscale version of the combo for the hunt-club set. When it comes to cars, though, Detroit's prospects may be grimmer. With Volkswagen's sales alone soaring 45% last year, maintaining share will be tough. Still, Detroit's new ''If you can't beat 'em, buy 'em'' strategy means that rising sales of Jaguars, Volvos, and Saabs now add to the U.S. tally. Across the Atlantic, the outlook is just as sour. European auto makers face ''massive price compression,'' Girsky says. ''The European auto industry is like the U.S. auto industry--only without light trucks. It's ugly.'' It's even uglier for GM and Ford. Their European operations are still in the red--and the situation in Latin America isn't much better. As for the merger mania of the late 1990s, it's not over. But now more of the action will shift to Asia and Honda. President Hiroyuki Yoshino predicts these deals ''will not be on the same scale as last year.'' With DaimlerChrysler anxious to bolster its Far East position and one or two truckmakers on the auction block in Japan, the transatlantic company could snare a significant piece of Japan's truck market. In Detroit, GM execs will have a tough time, because replacement vehicles in key segments are several years away. ''Y2K is going to be a very long year'' for GM, says Lobaccaro. Debate about sinking market share could play a role in the competition to succeed Chairman Jack Smith, who could retire as early as this year. Across town, Chrysler is regrouping after a rocky first year of marriage with Daimler and an exodus of senior managers. The new president on the U.S. side, James P. Holden, is trying to rebuild morale and turn attention back to regaining design momentum. And Ford is plunging ahead with schemes for implementing CEO Nasser's vision of transforming the auto maker into a provider of consumer goods and services. Nasser's goals call for expansion into auto-related services such as insurance and recycling, as well as Internet-based systems for linking consumers, dealers, factories, and suppliers. Coming off the best year ever, nobody's taking time to gloat. The Big Three are too busy worrying that they may have to eat their words about profits if 2000 turns into the promotional riot that some fear. By Kathleen Kerwin in Detroit _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Autos Carmakers in Japan: Buy or Be Bought  POSITIVES A strong economy will encourage spending on big, option-loaded cars and trucks that fatten bottom lines. Carmakers plan plenty of attractive new models and segment-crossing hybrids to whet consumers' appetites. NEGATIVES Steeper interest rates on lease or finance plans could dampen sales. Rising gas prices might curb buyers' enthusiasm for gas-guzzling sport-utes and pickups--two of the industry's fastest-growing and most lucrative segments. INTERACT E-Mail to Business Week Online | |||
