The first quarter of this New Year will be incredibly tough.
We're in a recession anyway, which means sales will be sliding from year-ago levels.
There just may be nobody left who wants a car after the 0% financing stimulus in the last quarter of the year. Hundreds of thousands of extra car buyers came into the market. October's sales alone were an extra 450,000 cars and trucks over what might have been expected. That's my calculation, but I'm a pretty good calculator.
The American producers are strong in trucks but weak in cars, and the foreign makes (most of them made here) — Toyota, Honda, Nissan, Mercedes, BMW, Audi — will be making gains at the expense of the home team.
The first quarter will be payback time. But it could be worse. Inventories are low thanks to that buying surge and the Christmas-through-New-Year shutdown. That means that even when sales die, the factories can keep producing to restock the dealers for spring.
Whatever happens, we shouldn't see a complete shutdown of industry production.
That takes care of the first quarter: terrible sales but continued production.
What about the recession? Everyone seems to expect a quick end. My experience is that getting out of a recession is a slow process. I would say two years from start in spring of 2001 to finish, which means spring of 2003. That doesn't mean the stock market can't move up. It doesn't mean we can't see signs of improvement in badly hurt industries such as the airlines and travel and vacation business. It doesn't mean I can't be wrong with a shorter or longer/deeper downturn.
But my guess would be, from past experience, that we have two very hard years coming up. This year 2002 could be in the 15 million car/truck sales range. It might get better by 2004 if a pickup starts in spring of 2003, but it won't be any record. Recoveries pick up steam slowly.
Who is strong? General Motors Corp. is strong on its truck side, and its strength will grow with the arrival next year of the long wheelbase/three rows-of-seats Chevy TrailBlazer and GMC Envoy SUVs, the Hummer H2 at the end of the year, 4-wheel steering on trucks, and the smaller Saturn Vue and Pontiac Vibe.
GM cars are incredibly weak, but the company will gain market share anyway. Not from Toyota Motor Corp. and Honda Motor Co. Ltd., Nissan Motor Corp. and Mercedes-Benz, Volkswagen AG and BMW AG and Hyundai Motor Co. Ltd. and Kia Motors Corp., but from Ford Motor Co. and DaimlerChrysler Corp., which are weaker.
Ford has a superb dealer organization to fall back on and will need that advantage in 2003. The product is weak. The F-150 pickup truck line is losing ground, as are its extensions. The Ranger pickup is old, the Taurus needs replacing, and there are no crossovers. Meanwhile, the chief new product executive is sitting in London worrying about Jaguars and Aston-Martin and, of all things, Mazda (yes, Mazda of far-away Japan) while the barn is burning down in Dearborn.
Chrysler, too, will need its never-say-die dealers, and they will have to sell the heck out of the Jeep Liberty, the Ram and Dakota pickups, the Sebring convertible and the PT Cruiser. That's because most of the remainder of the Chrysler/Dodge/Jeep line was in trouble in 2001, and those cars and trucks sure aren't getting any younger for this year.
Toyota, Honda and Nissan should run relatively well, considering it is a down year. The Germans and Koreans (not Daewoo Motor Co. Ltd., which still is in limbo) will do well, too, for a down year.
A serious question is how do you sell after 0% financing? Huger rebates (huger is a new word used only with Detroit's rebates)? Fifteen-year warranties? Free oil changes forever? How about a year's worth of gasoline free? OK, two year's worth of fill-ups free? Possibly 0% will become a way of life. I don't know. But the American makers are hooked on sensational incentives and the only way I know of getting off the drug are:
Sensational products that people insist on driving out of the showroom. The PT Cruiser, the Thunderbird. Volume products can be sensational, too. Honda doesn't need to give away Accords or Odyssey minivans.
Lower production, lower capacity, shutting factories. Knock out capacity for 2 million vehicles (seven or eight assembly plants) and prices will firm, unless the Japanese then build seven or eight more new ones, which they probably would do.
The good news in all of this is that Americans have shown they have an inexhaustible appetite for new cars and trucks. Two cars per household aren't enough. We may want three or four or five. The SUV movement opened an entirely new door. Now that is expanding to what we call crossovers and vehicles the likes of which we haven't seen, like the Chevy Avalanche. Maybe tomorrow, everyone will want a convertible or a steel-topped roadster, or a Mini to go with the Suburban or something that doesn't exist today.
All this industry needs is imagination.
Jerry Flint is a columnist for, and former senior editor of, Forbes magazine.
