Automakers steer warily into year of uncertainty

Broening Highway workers face slowdown, layoffs in spring

January 24, 1999|By Ted Shelsby | Ted Shelsby,Sun Staff

The auto industry faces a bumpy road as its cruises into 1999.

New-car sales are expected to gear down. High-profit used cars could be in short supply. Each of the domestic manufacturers has to negotiate a new national contract with the United Auto Workers.

On the bright side, at least for new-car buyers: Prices are expected to remain essentially unchanged or fall.

In Baltimore, anxiety levels are likely to run high as 3,100 workers at the local General Motors Corp. van assembly plant -- who face a scheduled production slowdown and an undetermined number of layoffs this spring -- await word on whether or not the Broening Highway factory, the city's largest manufacturing employer, will close for good.

"It's going to be an interesting but anxious year," said David E. Cole, executive director of the University of Michigan's Center for the Study of Automotive Transportation, "especially for the people in Baltimore."

"It's a very high-risk plant," he said.

GM, Cole said, is expected to consolidate production of the vans made here at its Wentzville, Mo., plant, which builds a larger van.

Cole said that Baltimore's best chance of continuing its 64-year relationship with GM is to win the right to produce another product.

In August, GM Chairman and Chief Executive Officer John F. Smith Jr. promised state officials only that the Baltimore plant would remain operating for at least two years.

That prompted Gov. Parris N. Glendening to establish a panel of high-level administration officials to coordinate the effort to retain the plant.

David Iannucci, deputy secretary of the state Department of Business and Employment Development and head of the panel, said the group continues to work with GM officials on ways to reduce the cost of doing business in Maryland.

While no meeting is scheduled, he said, the governor could travel to Detroit this spring to meet with GM officials.

Cole said he was not sure there was anything state government could do.

"The problem is not the work force in Baltimore," said Cole. "That plant has a good work force. The problem is that it's an old plant and it's not as efficient as GM's newer factories."

While state officials struggle to retain the city's largest manufacturing employer, auto dealers are hoping they can extend what was a good sales year.

Industry analysts and officials are predicting that new vehicle sales in Maryland will be slightly lower this year than in 1998, as automakers struggle with increased demand for sport utility vehicles and light trucks.

"I expect sales to dip about 3 percent," said Jacob J. Cohen, managing director for the Automotive Group of American Express Tax and Business Services Inc.'s Towson office.

Cohen said most SUVs are bought by drivers under the age of 40. Demand for cars which appeal to older drivers, who tend to keep vehicles longer, will decline as the population continues to age, he said.

A slight drop in sales will not necessarily mean a decline in dealer earnings, according to Cohen, as they continue to benefit from lower interest rates.

Falling interest rates helped auto retailers post a 7 percent profit increase during the first six months of 1998, he said.

For the nation as a whole, new car and light truck sales this year are expected to be off, but only slightly.

"It will be a strong market, but it will be down a little," predicted Sam Fiorani, an automotive marketing analyst with McGraw-Hill in Lexington, Mass. "I anticipate sales of 15.03 million vehicles as the car market begins to pick up on signs that the economy is beginning to slow."

David Healy, an auto analyst with Burnham Securities Inc., said the increased debt load of consumers will dampen their car-buying desires this year. "It will be another good year, but sales will be off slightly.

"I see truck sales up moderately, but car sales down," said Healy.

Cole agreed. He sees sales dropping by about 400,000 units this year.

Cole said his prediction is predicated on labor harmony within the industry. "That's not a certainty," he said. "As usual, the greatest potential for a strike is with GM," Cole said, but added that the company and the union seem eager to avoid a walkout this year.

Last year, strikes at two Michigan plants brought GM production to a virtual halt.

"There is going to be some tough bargaining, there is no doubt about that," Cole said. "But I will be surprised if there was more than a token strike."

Cole said Smith, GM's chairman, and the company's new president, G. Richard Wagoner, have been trying to improve relations with the United Auto Workers since last summer's strike, but they face some tough issues. "They have got to reduce their work force the way that Ford and Chrysler did 10 years ago," he said.

Consumers can expect to see a shortage of desirable 3-to 7-year-old used cars this year. As a result, prices will be slightly higher, according to Raymond C. Nichols, chairman of BSCAmerica Inc., a Baltimore-based company that operates six auto auctions throughout the country.

Nichols said the industry had been expecting an influx of 5 million to 7 million vehicles coming off leases to make their way into the used car fleet this year.

But the estimate had to be lowered to 3.5 million as more people chose to buy the cars they had been leasing, according to Nichols.

"It's going to be an interesting but anxious year, especially for the people in Baltimore."

Pub Date: 01/24/99

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