Automakers hope new models will boost sales

By Tom Stundza -- Purchasing, 2/8/2001

U.S. automakers, forced to slash output as markets crumble, have put a brave face on their plight by introducing new products at the North American International Auto Show in Detroit. The Big Three hope the new models will excite buyers and restore some market share already lost to foreign companies.

From the mood inside Cobo Hall, it was obvious that the slowing U.S. economy has hit the Big Three automakers pretty hard. U.S. auto sales for 2000 set a new record of 17.4 million cars and light trucks, an increase of almost 3% from the 16.95 million sold in 1999. But, instead of celebrating, the Big Three are forecasting a slowdown in sales-and are reducing motor-vehicle assembly.

The U.S. auto industry's December sales at a 15.5 million unit annual rate indeed were depressed. And that has caused full-scale recalculations of assembly schedules and materials purchasing plans." Auto sales in the U.S. are expected to slump in 2001 from last year's record 17.4 million units. Estimates range from a low of 15.8 million to a high of 16.5 million.

So, the industry has decided to work on the current problem of bloated inventories. U.S. automakers say recent declining sales are due to the slumping economy and a harsh U.S. winter. "We are going to try to manage inventories by slowing production," says Ron Zarrella, head of GM's North American automotive operations.

General Motors Corp., the world's biggest car manufacturer and market leader in the U.S., along with Ford Motor Co. and DaimlerChrysler's Chrysler Group subsidiary, all have taken an ax to first-quarter output. GM has cut its vehicle production forecast in the first quarter of 2001 to 1.2 million vehicles, down 21% from a year ago. Ford plans to produce 1.05 million vehicles in the first quarter, down 17% from first quarter 2000. Chrysler plans to make 678,700 vehicles in the first quarter, down 25.9% from the same period in 2000.

Still, automotive leaders attempted to pour oil on troubled waters at the Detroit car show, pointing to glamorous new models and insisting that although car sales are expected to skid in 2001, they will still likely be at near-historic highs. Wall Street firm Burnham Investment Research seems to agree, as its latest market research report suggests the recent Federal Reserve interest rate cut is good news for automakers-whose prospects are tied to interest-sensitive consumer auto loans.

Jacques Nasser, Ford's chief executive, for example, still believes the U.S. auto industry will end this year with one of the best sales performances in history, despite a slowdown in the U.S. economy. Last year was a spectacular year," he tells reporters at the car show. "We're taking 2001 quarter by quarter, but our best projections for this year are somewhere between 16 million and 16.5 million in sales." That would make 2001 the third-best sales year after the 17.4 million sold last year and 16.9 million in 1999.

"Right now, it's pretty chilly in Detroit," agrees Richard Schaum, Chrysler's executive vice president for quality. "But, compared with past slumps," he says, "it's not the end of the world since the prediction of our demise is premature." Underlining their confidence that they have products to beat importers and rebuild market share, the automakers in January introduced various new models of cars, light trucks and sport-utility vehicles-some of which will go on sale this summer.

The number of new models underscores the fact that the record sales pace in the 1990s has hidden a dangerous development for domestic U.S. car and light-truck makers. The Big Three lost U.S. market share in 2000 as foreign car makers scored big gains in sales. According to one research firm, the Big Three's share of the U.S. auto market slipped to 66% in 2000 from 68% in 1999.