Despite the second-best sales year in history, North American motor vehicle production dropped 11% in 2001 as car companies attempted to reduce inventories of unsold vehicles. That caused the auto industry's sheet steel buy to tumble 15%. Industry analysts now believe that overall auto sales in the U.S. will drop 11% in 2002, which raises big questions about assembly since Wall Street expects automakers to keep new supply in line with demand. "It's clear that the zero-financing marketing programs of last year will negatively affect North American production scenarios in 2002," says analyst Mark Parr at Cleveland-based McDonald Investments. "This will have negative ramifications for sheet steel demand this year." Christopher Plummer at Metal Strategies in West Chester, Pa. says signals for the automotive market—and its need for sheet steel—aren't very clear. "We're really at a turning point right now, and what happens will hinge on the extent to which the consumer keeps spending on big-ticket items," he says. "If sales remain steady, automotive production could stay flat with 2001. However, worst-case consumer spending scenarios could result in auto production declining anywhere from 5-15%." Under worst-case conditions, the analysts estimate that auto industry purchasing of sheet steel could decline by as much as 15% in 2002.

stundza@cahners.com