Issue: Mar 2004


Windecker



Are We There Yet?

by Ray Windecker

Will 2004 be the year that the auto industry sees the end of the downturn?

Automotive sales have been on a long but moderate downhill slope, a ride made unusually bumpy by the in-and-out timing of massive incentive programs that followed the sad events of September 11, 2001. The trip began earlier, starting at the cyclical peak of an 18.7 million annual rate in the first quarter of 2000. Now, 16 quarters later, the industry is searching for a reversal of the downhill trip. The question is are we there yet?

There is a bit of hope in the data. The first two quarters of 2003 were definitely the weakest of the four-year span, thus indicating a possible cyclical low point followed by two somewhat better quarters. That would appear to be good news but a similar patter existed in 2002, and that pattern morphed into the very soft early months of 2003. Unfortunately, the quarterly data shows the glass filling up a bit in the second half of 2003, but not yet quite to the magical the-glass-is-half-full level.

The monthly annual rates contain another mixed message. On the upside, sales moved upstream in each of the October-December 2003 months, but again, an identical pattern in 2002 brought the soft first half of 2003. The monthly data is another half-full, half-empty set of numbers. As for January 2004, the 16.7 million annualized rate is simply another reflection of unusually foul weather and a post-2003 year-end push.

There is little in the sales trends to indicate any return of boom times. Also, there is little in the underlying economic picture that would bring cheer to the hearts of most numbercrunchers. The unemployment rate is down a bit with people dropping off the bottom of the list or taking third-choice, lower-paying jobs, high-value manufacturing and informationservice jobs are going away, the dollar decline delineates what other governments think of our national economy, the deep-south plants in the United States that replace other higherwage plants will slowly squeeze down the national wage level, consumers are burdened with high debt levels hopefully supported by ever-growing real estate values and every trade agreement appears to bring both cheaper consumer prices and a loss of jobs. Rolled together, these bits of long-term economic data indicate that the country is very slowly being forced into an open-border, one-world, economic quagmire.

Not a pretty picture. But, as usual, there are howevers. One however is an uptick in some short- and intermediate-term indicators, stability in others. The Gross National Product is edging up. Manufacturing percentage utilization is a bit better, although of a diminished total capacity. Another plus is that it is an election year and the government will do everything possible to jimmy and brighten up the picture.

A factor not to be overlooked is the American people. They have little belief that the long-term economy will significantly improve, but there is a tendency to ignore long-term and international problems and to plow ahead in a somewhat more confident mood and exercise their buynow mode to take advantage of low interest rates and high-rebate deals.

As a cautionary note, six times during the last 15 years this column has, armed only with reasonably though-through guesses, exhibited unnecessary and excessive bravery by venturing into the risky business of forecasting future sales.

The resultant market direction forecasts have been accurate, but the amount of movement has been less than perfect; once too optimistic, twice pessimistic and three times about right. Based on that record, you might want to add a bit of your personal optimism or pessimism to the answer to the question are we there yet? That way, we can share the blame or the glory.

This columns official answer to the question is yes, we are at the end of the downturn, but barely, thus aiming 2004 at a very modest sales gain based more on the buy now philosophy of the American character than the analytic value of current sales and economic indicators. Included for free is a casual observation that any full-line manufacturer who thwarts the expectations and needs of most buyers for low rates and/or high deals is misreading the market.

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