Will Vehicle Sales Ring The 16.5 Bell?

Automotive Industries,  Jan, 2001  by Gerry Kobe

• E-mail
• Print
• Link

After two record years in a row, analysts are predicting a softening of the auto market this year, with light vehicle sales sliding about one million units to the 16.5 million range. But privately, some Tier One supplier CEOs are bracing for a much leaner year.

"Don't attach my name to this," warns the CEO of a Detroit-based Tier One, "but I have had conversations with my counterparts at the OEs and 16.5 is not what they are telling me. They think it might go lower than 15.5 before this is through, but nobody wants to go on record with that because it could become a self-fulfilling prophecy." He adds that 15.5 million units is what his company is preparing for.

Such a dramatic downturn would mean nearly 14 percent in lost volume, but that isn't unheard of in the industry. 1973 was a record year but the market fell 15 percent the year following. 1978 and 1986 were also record years but sales fell by six and seven percent, respectively.

"We're going to slump, but to where?" asks Visteon COE Pete Pestillo. "I think it will be 16.5 or even 17 million. Sounds like a pretty good year to me. The number is definitely going to stay well above 15 for a significant period. We've never fully assessed the value of leasing so we need to remember that leasing can replace the five or six year note."

Marc Santucci, president and automotive analyst of ELM International in Lansing, MI., says he is comfortable with Pestillo's prediction, but thinks the Big Three will get hit harder. "The market will hold but the U.S. makers are losing share to Europe and Asia," he says. "That's happening right now, because they are adding new products in areas they didn't compete in before, so it offsets what might otherwise be a decline."

Taking it a step further, Kay Polit, principal at A.T. Kearney's Costa Mesa, California office, says the information being told to supplier CEOs might even be contrived.

"I don't think 15.5 is accurate," Polit says. "If so, we'd be seeing it right now and we're not. Remember there is intense pressure on suppliers right now to cut cost And to the extent that CEs inflate numbers, that ends up as a cost to suppliers. So the OE may be hedging a bit to make sure they don't end up with an inflated forecast and then have to negotiate with suppliers to see who takes the hit for not meeting a number."

Palit says the sales number ties directly to the economy and one of the most telling moves is that the Federal Reserve didn't touch interest rates.

"(Fed chairman Alan) Greenspan doesn't see an emergency at hand, not even close to an emergency," she stresses. "He lives and breathes this stuff everyday so if he is not worried who am I to argue? The economy will be fine and sales will ring in right around 16.5 million."

COPYRIGHT 2001 Diesel & Gas Turbine Publications
COPYRIGHT 2008 Gale, Cengage Learning