For the past five years, the U.S. auto market has been thriving. During that time, the Big Three have sold more than 60 million cars and trucks. Demand has been rock-steady throughout. But after another hot summer-sales season, Motown felt a chill in October. Despite record incentives and a raft of new products, Big Three sales slipped 4% (the overall market was off 1.6%).
Are the good times ending? Let's just say there's cause for concern. Even with lower sticker prices and costly rebates, the Big Three seem unable to maintain last year's pace. In October, the first month of the new-model year, sales dropped 4% at General Motors Corp., 2% at Ford Motor Co., and 8% at Chrysler Corp. "The fact is, the demand is not growing, and the supply is," says John Casesa, auto analyst at Schroder Wertheim & Co.
Even more worrying are the details. Suddenly, sales of trucks, minivans, and sport-utility vehicles (SUVs)--a highly profitable sector that made up for Detroit's deteriorating position in passenger cars--are slowing. While the newest SUVs still seem to titillate buyers, the older stuff isn't moving. The minivan market is slipping, and even top-selling pickups are losing a little steam. There's no dramatic downturn in any one segment, but dealers say it's a fragile market fueled primarily by rebates. "As soon as you take any incentives off any product, sales just come to a grinding halt," says Gordon Stewart, a Chevrolet dealer in Michigan and Florida.
So far, the extensive incentives are not putting serious dents into Detroit's bottom lines. Analysts say that Ford and GM this year will bring in record profits--about $6.5 billion each. But the healthy net has more to do with cost-cutting than booming sales. Even Chrysler, despite a major strike and a lack of fresh product, will post solid profits of about $2.7 billion for 1997. And analysts have not backed off predictions of even better results next year for all three.
But that depends a lot on America's continuing love affair with trucks. "They're not making any money on cars, but they're coining it on trucks," says David B. Healy, auto analyst with Burnham Securities. Ford, for example, makes an estimated $15,000 profit on its luxury Lincoln Navigator, and Chrysler earns about $9,000 on each new Dodge Durango. But not all trucks are selling. The compact SUV segment is particularly hard hit: GM's Blazer was off 31% in October. Ford's bread-and-butter Explorer dropped 9%, and Chrysler's Jeep Grand Cherokee fell 11%. Meanwhile, sport-utes from Mercedes-Benz, Honda Motor Co., and Toyota Motor Corp. are skimming some cream off the top of the market.
MORE REBATES. Overall, trucks remain popular--accounting for 48% of vehicle sales in October, one of the highest levels ever. "We don't see any sign that the truck business is softening," says Ford Chairman Alexander J. Trotman. Still, some in Detroit are worried about the soft spots. Where Ford's big SUVs are up, sales of its F-Series pickups dropped 10% in October. Chrysler expects Durango to revive SUV sales, but its minivans are lagging. Wherever there's weakness, carmakers are likely to respond with costly rebates.
Detroit's weak point remains conventional passenger cars. Honda's new Accord is a huge hit, and Toyota can't meet the demand for its Camry. GM did score a 21% gain in October over last year in sales of midsize cars, but that hasn't returned any lost share in the overall car market. Chrysler is counting on the new Dodge Intrepid and Chrysler Concorde full-size sedans to reverse its declining car fortunes. And Ford, without any major new cars to offer, will continue to rely on incentives.
Despite the October chill, Motown doesn't expect its five-year run to end with a thud--especially given the healthy economy. But even a brief slowdown in demand, amid a rush of new competition from overseas, is a reality check for Detroit. Meanwhile, consumers can look forward to more rebate checks.