2002 OUTLOOK: Economists say vehicle sales could fall 10%

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxx>]

2002 OUTLOOK: Economists say vehicle sales could fall 10%

January 9, 2002


BY ALEJANDRO BODIPO-MEMBA
DETROIT FREE PRESS BUSINESS WRITER

Citing the effects of the Sept. 11 terrorist attacks along with a weakening economy, economists from the three traditional Detroit automakers estimate car and light-truck sales will fall as much as 10 percent in 2002.

The chief economists for General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group projected that U.S. sales will be between 15 million and 15.5 million cars, vans, pickups and sport-utility vehicles this year, compared with the 17.2 million vehicles sold in 2001.

Detroit's automakers will begin telling Wall Street analysts today how they plan to cut costs and reduce excess manufacturing capacity.

All three companies have scheduled meetings with analysts this week in Detroit. Speaking Tuesday at the 2002 Automotive Outlook confere, Mustafa Mohatarem of GM, Ellen Hughes-Cromwick of Ford and Van Jolissaint of DaimlerChrysler AGaddressed the health of the U.S. auto industry.

The trio pointed to several reasons for the current woes being faced by domestic automakers.

While sounding notes of cautious optimism about the prospects for automakers, the economists said uncertainty about the economy made predictions tough to make.

The U.S. economy fell into a recession in March. Auto sales were already slowing when the attacks brought the economy into even greater uncertainty.

A major concern of the economists is the effect the zero-percent finance war had on 2002 auto sales.

DaimlerChrysler's Jolissaint said deep discounts offered to consumers in the fourth quarter caused upward of 500,000 vehicles to be sold at the end of 2001 that might otherwise have been sold this year.

"There is still a lot of uncertainty four months after 9/11. We think the zero-percent financing will lower sales in 2002."

Consumer confidence also plummeted in the second half of 2001, and automakers found themselves operating with significant excess capacity.

While forecasting a mild recovery in the second half of 2002, the economists pointed to several positive trends.

Leading indicators have shown upward trends the last three months and interest rates remain low. In addition, moves by the Federal Reserve designed to bolster consumer confidence over the last year may bear fruit this year, the economists say.

"I think the auto industry will do better than the current consensus," Mohatarem said. "With continued strong monetary and fiscal stimulus, I expect the economy will be stronger in 2002."

Prior to September, the three automakers were also coming under intense pricing pressure from foreign competitors.

According to economists, the Japanese imports, in particular, have been eating away at the former Big Three's U.S. market share.

Few experts will say with absolute certainty what will happen with auto sales and profits in the year ahead.

Ford's economist, Hughes Cromwick, and DaimlerChrysler's Jolissaint estimate sales of cars and light trucks should be around 15.5 million in 2002. Mohatarem of GM projects sales will likely be between 15 million and 15.5 million cars and light trucks.

"We think the market will come back, but we remain cautious, cautious, cautious," said Wolfgang Bernhard, Chrysler Group chief operating officer in a recent interview at the Los Angeles Auto Show. "This is a hard year, a very hard year to forecast. The toughest I can remember."




Contact ALEJANDRO BODIPO-MEMBA at 313-222-5008 or bodipo@xxxxxxxxxxxxxx