DETROIT — The outlook for U.S. new light vehicle sales this year is for the fifth best results on record, but depending on your point of view, that might not necessarily be as great as it sounds.
For one, the preceding four years are the four best, and the bar has been raised as to what constitutes a good year. Sales averaged 17 million per year from 1999 to 2002, after having topped 16 million only once before, 16.1 million in 1986.
Last year's mild recession was not enough to cause a paring of capacity or squeeze many unprofitable products out of the market. And manufacturer-subsidized 0% financing, generous rebates and early lease-buyback programs are now an industry institution.
Without a significant economic downturn, competition has increased, capacity has remained high and pricing power for most brands is practically non-existent. Profits for the manufacturers are much harder to come by even with historically high sales volumes.
Trends indicate competition will get more heated in 2003.
- There were 39 brands of light vehicles for sale in 1986, the current fifth ranked year on record. There will be 43 this year.
- In 1998, the year prior to the aforementioned four-year sales blitz, the Top 10 brands held 75% of the market. That dropped to 67% in 2002 as many of the smaller brands expanded into new segments.
- Another 22 new vehicles will be introduced this year, with only five being discontinued without a replacement, for a net gain of 17. Dealers will still have leftover inventory of the discontinued vehicles to sell.
- Despite a sluggish economy, the Big Three are pulling out the stops — meaning no shyness about more incentives — to end their market share bleeding. At the same time, the rest of the players still see blood, and are not about to retrench after the boom years of 1999-2002 let several auto companies grow by leaps and bounds.
Although the consensus is that economic growth will start rising in the second half of 2003, that's based on assumptions of a quick resolution to a possible U.S.-Iraq war, and that issues with North Korea won't escalate to the point that economic uncertainty remains high and employers back off new hiring.
The good news for most dealers is that manufacturer incentives will remain strong, and may even get better. General Motors Corp., Ford Motor Co. and DaimlerChrysler Corp. will continue trying to outmaneuver each other by varying their plans, as well as to combat the onslaught of more products, and more incentives, from the rest of the industry.
The bad news for the OEMs is that sales likely will be trending down while incentives are trending up. That means more pressure on pricing, which is bad for the balance sheets. The average new-vehicle transaction price will decline 1%-2% annually for the next 4-5 years, predicts Global Insight, an automotive forecasting and consulting group.
While premium brands such as BMW with a good mix of product differentiation could still make a sound living in 2003, the economy is pushing price-sensitive buyers out of the market, says George Magliano, Global Insight's senior automotive forecaster.
“Consumer confidence was the whole key in 2002,” explains Magliano, “But we're not generating more jobs right now. Until there is job growth it will be more difficult (to draw buyers) into the market. First-time buyers are out of the market right now.”
Moreover, price sensitive buyers have a glut of used vehicles to pick from if they have to buy. “Certified used (vehicles) are doing well,” adds Magliano. Those topped 1.2 million last year.
Factoring in a short and decisive war with Iraq, and a rebound in the economy during the second half of the year, Ward's forecasts U.S. light vehicle sales of 16.4 million in 2003, down from 16.8 million in 2002.
If there's no war, sales could be as much as 100,000 units higher. A long, messy conflict could drag volume down to as low as 15 million-still a good level historically for what would hopefully be a “trough” year. (The assumption being that the economy would return to a stable growth mode with rising employment, and light-vehicle sales would improve in 2004.)
But with so many marques competing for share, it would be just as hard to make a profit as in prior sales recessions, and possibly worse since the pricing structure was already under pressure during the good times.
The market dynamics will be centered on cross/utility vehicles in 2003.
By the end of this year CUVs will surpass luxury cars and vans to become the fourth largest segment in the U.S. behind midsize cars, pickups and sport/utility vehicles.
Seven new entries hit the segment this year, and the theme will be upscale expansion. Cadillac, Infiniti, Porsche and Volkswagen all join the CUV parade for the first time with pricey entrants, while Chrysler is putting a $30,000-plus price tag on its new Pacifica. Lexus shows good timing, amidst the sudden explosion of competition in the segment's premium end, with the debut of the RX330, the replacement for its RX300, the perennial luxury CUV sales leader.
Also for CUVs, the Nissan Murano, Honda Element and Pilot will be on sale for an entire year for the first time, and Mitsubishi will have full year sales of the Outlander and introduces the U.S.-made Endeavor this spring.
The upscale expansion of the CUV segment should mean a reversal of fortunes for the luxury car segment, which had been making a comeback.
But it could be worse for minivans even as Honda and Toyota are increasing capacity for theirs, Ford is redesigning the Windstar and introducing the new Mercury Monterey and Nissan is bringing back the Quest in a an all-new form.
The competitive intensity of the minivan segment will be eased somewhat because Pacifica production will replace some minivan output at DC, and GM is pulling its venerable Chevrolet Astro and GMC Safari lines from the market this year, meaning all minivans will be front-wheel-drive by the ‘04 model year.
The most interesting brand to watch this year could be Cadillac.
It has its first CUV, the SRX, as well as the XLR sports car coming out this year. Combined with the Seville replacement, STS, coming in 2004, they're pivotal to the division ending its long-time sales slide and returning to its former image as a standout luxury brand.
Toyota Motor Corp.'s new Scion brand, that hopes to start a youth movement, is also notable for 2003 but market coverage won't become nationwide until 2004.
Nissan dealers have reasons to be optimistic in 2003 because of the Murano CUV and Quest minivan, and redesigns to the Maxima midsize sedan and Pathfinder SUV. Nissan also introduces its first-ever large pickup (Titan) and large SUV in late 2003.
If the economy is humming by then, Nissan could be the brand to watch in 2004.
Haig Stoddard ([email protected]) is manger of industry analysis for Ward's Communications.
New Vehicles and Major Redesigns<br />Scheduled for the U.S. During 2003
Acura TSX (new)
BMW 5 Series
BMW 6 Series (new)
Jaguar J-Type (replaces XJ)
Mercedes Maybach (new)
Volkswagen Phaeton (new)
Pontiac Grand Prix
Cadillac XLR (new)
Chrysler Crossfire (new)
Mazda RX-8 (new)
Buick Rainier (new)
Infiniti large SUV (new)
Land Rover Discovery
Mitsubishi Montero Sport
Nissan large SUV (new)
Chevrolet Colorado (replaces S-10)
GMC Canyon (replaces Sonoma)
Nissan Titan (new)
Dodge Sprinter (replaces Ram Van)
Mercury Monterey (new)
Pontiac GTO (new)
Scion xA (new)
Scion xB (new)
Cadillac SRX (new)
Chrylser Pacifica (new)
Infiniti FX (new)
Kia CUV (new)
Lexus RX330 (replaces RX300)
Mitsubishi Endeavor (new)
Porsce Cayenne (new)
Volkswagen Touareg (new)