DETROIT (Jan. 13, 10:30 a.m. EST) — The numbers may look solid, with experts predicting only a moderate drop-off in North American vehicle sales for 2003, but the real test for auto suppliers is whether they are tied in with the brands consumers want.
Industry forecasters predict auto sales will fall in 2003 to about 16.5 million vehicles. Production is expected to be 16.1 million units — about 300,000 fewer cars and trucks than in 2002. International automakers will continue taking more of the total pie away from domestic carmakers General Motors Corp., Ford Motor Co. and the Chrysler division of DaimlerChrysler AG.
To succeed, auto suppliers must court work at the North American manufacturing centers of automakers based in Europe, Japan and South Korea.
“The real concern is when you still have so many big suppliers who are 60, 70 percent in terms of sales committed to the Big Three,” said Kim Korth, president of Grand Rapids, Mich.-based automotive consulting group IRN Inc.
“I'm not using hyperbole by saying that the Big Three are going to be continuing to fall. We're looking at a linear decline in their market share that does not seem to have much of a chance to turn around until mid-decade.”
In November, the Big Three had a combined market share of 61.7 percent in North America, according to Standard & Poor's analysts. That share represented a drop of 3.3 percentage points from a year earlier, and a historic low.
International automakers will launch annual production capacity of more than 1.5 million vehicles in North America during the next three years. Honda Motor Co. Ltd. already is expanding its just-opened assembly plant in Alabama, while Nissan Motor Co. Ltd. will launch production at its Mississippi plant this year.
Hyundai Motor Co. is nearing the end of construction for its first North American plant, also in Alabama, while Toyota Motor Corp. is on the search for another plant.
Those companies also have hot products coming out that are expected to pull even more sales away from the traditional domestic manufacturers, Korth noted. The big-brand icons from Ford, GM and Chrysler, meanwhile, have slated few new products until 2005 or later.
To win contracts, though, suppliers will have to woo customers — regardless of where the customer is based.
“Yes, it's hard to get business at a new customer,” Korth said. “So what else is new?”
“All of the vehicle manufacturers are out there,” noted Paul Ballew, GM's executive director of market and industry analysis. “The real question is, what is your strategy? Can you take advantage of your vehicle mix?”
For its part, GM's strength is in the expanding sales base in North America for trucks, sport utility vehicles and their offshoots. Today, more than half of all new vehicles sold are from the truck family — not family sedans, Ballew said. Some months, the mix tops 55 percent for truck sales.
“It's trucks, trucks and more trucks for us,” he said. “Why? Because that's where the action is.”
Last year's concerns of a big drop still remains, fueled by speculation that automakers have pulled ahead too many potential future sales by offering deep discounts on prices and financing.
Ballew contends, though, that the incentive programs first launched in the last quarter of 2001 should not have too much of an impact. In total, he said, GM believes the discounts could affect 1 million vehicles total during the coming years.
The bigger concern is whether consumer confidence will drop.
“As the economy goes, so goes the auto industry,” he said.
The economy is improving, but very slowly, with most manufacturers taking a cautious view. There will be few investments in capital improvements or big boosts in employment rates probably for another year, Ballew said — that means little discretionary income for car purchases.
Still, he does not expect to see car sales drop below 16.5 million in North America for 2003 — down from about 17 million for 2002 — unless there is a dramatic shock such as war, but those events are difficult to plan.
“We've done a variety of different scenarios for what would happen [during a war with Iraq],” he said. “The problem is, until something happens it becomes just an exercise in scenario planning. If it comes, we become, not surprisingly, very concerned.
“Our more mainstream view of what will happen is that there will be a limited-engagement conflict. It will be a drag on the U.S. economy, but not enough to drag us into a double-dip recession.
“We have a bit of a headwind for next year, but I don't think we should overstate it.”