Steady sales ahead unless there's a war

Chances of labor peace, a new model at GM plant

Automobiles

January 12, 2003|By Ted Shelsby | Ted Shelsby,SUN STAFF

It should be another favorable year for the U.S. auto industry, but there will be some bumps in the road.

Auto analysts and industry officials see new-car sales remaining stable in Maryland and the nation, assuming there is no war in the Middle East. A conflict could reduce sales by as much as 6 percent, they said.

Other predictions include:

Labor talks leading to new contracts between the Big Three domestic automakers and the United Auto Workers union.

A continuation of the generous incentives that boost new-car sales but cut into the profits of the automakers.

Fewer bargains on the used-car lots.

A possibility of increased production at the General Motors Corp. van plant in Southeast Baltimore.

On the new-car sales front, consumers will be in the driver's seat again, said David E. Cole, president of the Center for Automotive Research in Ann Arbor, Mich.

Consumers, he said, have come to expect the big incentives that the automakers have been offering to move cars in recent years.

"Buyers know that if they just sit back and wait, they will get a good deal," he said.

Buyers are also benefiting from the increased affordability of new cars. "Research shows that 10 years ago it cost the average consumer 30 months' pay to buy a new car. Today that is down to about 20 months," Cole said.

Incentives have turned into "a monster the industry can't kill" and they will continue to eat away at the industry's bottom line, he said.

The manufacturers "have done a good job of cutting costs in recent years," he said. "But they have done a poor job of being able to hold on to any of these savings because of the cost of incentives."

According to Paul Taylor, chief economist with the National Automobile Dealers Association, new-car sales this year could total 16.7 million units.

That would be about the same as for the year just ended, and it would also be the industry's fourth-best sales year.

"Generally, you don't see sales fall off the cliff after a good year, unless the economy falls off the cliff, and it's beginning to look like we are already through the recession," Taylor said.

But war with Iraq would change that, Taylor said. "If there's a war, I see sales of 16.3 million to 16.5 million units. War is not good for the car business. Oil prices could shoot up, at least temporarily. Corporations will be more cautious in hiring back laid-off workers, and there will be a big Army reserve call-up," he said.

New-car sales in Maryland are expected to follow the national trend, according to Jacob J. Cohen, managing director of the auto dealers' group of American Express Tax and Business Services Inc. in Timonium.

He cautioned, however, that a war could reduce car sales in the state by as much as 6 percent from the approximately 400,000 units sold last year.

Consumers looking for less-expensive transportation will continue to find great buys on the used-car lots, at least through the first part of the year.

But that is likely to change later on, said Raymond C. Nichols, chairman and chief executive of Bel Air-based BSCAmerica Inc., which operates used-car auctions in Maryland and other parts of the country.

Nichols said a drop in the number of used cars coming onto the market during the second half of the year will stop the decline in prices.

The new year will also bring negotiators for the United Auto Workers, General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler unit to the bargaining table to work out new national contracts.

"There will be some tough issues on the table - benefits and plant closings, to name just a couple - but I don't see any big blowup; I don't see any strike," Cole said. "The union is becoming more aware that GM needs to make money to provide the job security the union is seeking for its members."

The UAW will be pushing to keep plants open, including the 68-year-old van assembly plant on Broening Highway.

"The outlook for Baltimore may seem pretty bleak at this time," Cole said, "but this could change."

He said that General Motors will be launching a sizable number of new-model cars and trucks in coming years and it is quite possible that one will be made in Baltimore.

GM is not about to make guarantees. The company line remains the same. "We will continue to built the Chevrolet Astro and GMC Safari in Baltimore until the summer of 2005," said GM spokesman Dan Flores. "Beyond that date, the demand for the Astro and Safari will determine the plant's future."

Cole said it did not go unnoticed by GM executives in Detroit last year when workers at the Baltimore plant chalked up impressive improvements in productivity and quality. Such gains are difficult to achieve, he said, when workers are building products as old as the Astro and Safari.

The vans were introduced in 1984 and have not undergone a major redesign.

Cole's advice to the GM workers here: "Be patient. Don't give up. The potential is fairly good that a new product could come there."

The plant could benefit from a decision by Chrysler this year to eliminate its model 1500 commercial van that competes with the Astro and Safari, according to George E. Hoffer, a professor of economics at Virginia Commonwealth University in Richmond and an auto industry analyst.

"I see the market for the Astro and Safari getting stronger as it loses competition," he said.

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