New car and light truck sales will moderate somewhat in 2002, but remain strong compared to historical standards.

That's a forecast by Paul Taylor, chief economist for the National Automobile Dealers Association, who studies various economic factors for his annual vehicle sales report.

He predicts sales at 15.9 million this year. That's down from 2001's 17.1 million and 2000's 17.4 million. But Taylor notes those were record years.

“You could say 15.9 million is weak only when compared to the best sales years in history,” Taylor says. “Given that the preceding three years were the best in the history of automotive retailing, there is momentum for the long run. Working in the industry's favor this year are positive underlying economic fundamentals.”

Among them:

  • A $90 billion-$120 billion stimulus provided by oil price declines, a happy coincidence.

  • Falling interest rates have lowered dealership floor planning costs, according to Taylor.

  • While unemployment is higher, it is not at the level of the 1990-1992 recession. Layoffs put people out of the car-buying market, “but at 5.8% unemployment, we don't have nearly as many people forced out of the market,” says Taylor.

  • While consumer confidence is down from an index level of 140 in January of 2001 to an index of 85, that's not nearly as serious as when it was below 60 during the 1991 Gulf War and again during the 1993 recession. “Consumers remain in a relatively good mood,” says Taylor.

He views the current economic situation as a “shallow recession.” Some economists say the nation is already coming out of it. Taylor sees recovery in the second quarter, premised on consumer confidence staying steady.

He says it won't be a “rocket recovery” because “this economy never slipped so much that it's going to skyrocket out.”

He adds, “This economy and these consumers have repeatedly surprised us on the upside as they continue to spend. Consumers are surprising everyone, not just the folks in Detroit. This is simply a wealthier society than 10 years ago.”

Still, dealers, in preparing for fewer new-car sales, are focusing on used-car sales and will place a greater emphasis on the service department this year.

Taylor says that even in a good year new-car sales account for only 25% of dealer profits, compared to 29% for used-car sales and 46% for service and parts.

Zero percent financing prompted a surge in trade-ins and a drop in leasing from a peak of 33% to about 25%, Taylor reports.

“Many loyal used-car buyers were converted into new-car buyers,” he says. “So dealers are challenged with the need to turn over inventory quickly in their used-car operations at a time of faster depreciation on these vehicles.”

Taylor says dealers' average a net profit of $240 on used vehicles and $170 on new. That's not expected to get better this year. “New car profits will be slim,” says Taylor.

What's selling?

Imports with the exception of Nissan are gaining and the Big Three are lagging in sales. In 2001 compared to 2000, DaimlerChrysler sales dropped 10%, Ford 6% and General Motors 2%. At the same time, BMW sales increased 13%, Toyota 7% and Honda 4%.

Much of that has to do with the impact of a strong dollar, making imports relatively inexpensive when compared to domestic products. Some Asian automakers have a $1,900 cost advantage simply because of the yen-to-dollar ratio.

Crossover utility vehicles — vehicles blending the look of an SUV with the ride of a car — are going to be the next battleground as more and more manufacturers enter that CUV segment, says Taylor.

The crossover segment started with the unibody-constructed Toyota Rav 4 six years ago, “but the domestics did their homework,” and are featuring strong competition with entries such as the new Pontiac Vibe and the Ford Escape.