North American production will start an upward trend in first-quarter 2007 after hitting a trough in fourth-quarter 2006, but it will not reach the historically high levels averaged for most of this decade until the latter part of next year.

Ward's forecasts quarterly seasonally adjusted annual rates (SAARs) will not get close to the 16.5 million averaged from 2002 through first-half 2006 until third-quarter 2007. (The SAARs are calculated using the Federal Reserve's factors for the U.S. market for all of North America.)

Third-quarter 2007 also will be the first quarter since this April-June to see an improvement over year-ago, when it is forecast to reach a 16.4 million SAAR, compared with a Ward's third-quarter 2006 estimate of 15.4 million.

Production is forecast to hit bottom in fourth-quarter 2006, with a 15.1 million SAAR, followed by 2007's first-quarter 15.4 million rate and second-quarter's 15.6 million.

Capacity utilization for the industry — based on what auto makers can build over a 52-week work year — will drop to 69.7% in fourth-quarter 2006, from 80.6% in like-2005 and 77.1% in fourth-quarter 2004.

The utilization rate as well as actual production in the U.S., Canada and Mexico, each, is forecast to decline in the fourth quarter from year-ago. North America's third-quarter capacity utilization is estimated at 68.7%, compared with 74.7% last year and 73.9% in July-September 2004.

The trough results from sluggish economic growth, which is weakening vehicle demand, compounded by higher energy prices eating into consumer spending.

Worse still, North America's top three producers — General Motors Corp., Ford Motor Co. and DaimlerChrysler AG — are implementing strategies to wean themselves from customer rebates in order to improve profit margins on vehicle sales and gain more pricing power.

The result is a dampening in demand for their products, resulting in a major inventory adjustment in the third and fourth quarters. U.S. OEMs must see at least one strong month in the fourth quarter to achieve a 17.5 million total vehicle sales SAAR — or better — to stave off further inventory adjustments in early 2007.

Ward's projects North American production will continue its downward spiral through the end of the year.

After an estimated 11.2% decline in October, output is forecast to total 1.224 million units in November, off 10.2%. It will be the lowest production total for November since 1.078 million in 1992.

Including a 10.4% decline for December from year-ago, production for the final quarter of 2006 is pegged at 3.625 million units, 10.6% below October-December 2005.

With near-term U.S. demand expected to be down, a look ahead at first-quarter 2007 shows little improvement. GM, Ford and Chrysler all are forecast for double-digit declines through November.

Nissan North America Inc., expected to start showing some improvements in its year-to-year comparisons as it shifts production mix more to the redesigned Nissan Altima and Sentra, is forecast for a 5.9% decline in November.

Toyota Motor Mfg. Inc.'s outlook calls for a pullback on truck output while it imports more Camrys and Corollas to augment maxed-out North American plants.

Toyota is expected to continue making market-share gains in North America, owing much of that to its Scion small-car brand, the RAV4 small cross/utility vehicle and the FJ Cruiser SUV, all of which are imported.

However, even as its sales are surging, Toyota's forecast North America output will drop by single-digit numbers through November.

Honda of America Mfg. Inc. will see an overall production increase compared with year-ago during October-November, due in part to the first-time North American assembly of its small CR-V CUV that launched in August.

Year-to-date, 2006 production through November is forecast at 14.683 million, 3.1% below prior-year's 15.150 million.

North American Production Outlook

(Seasonally Adjusted Annual Rates by Quarter)

Qtr. 12-Mo. Roll
2001 1Q 15.4 16.9
2Q 16.2 16.4
3Q 15.9 16.0
4Q 15.9 15.8
2002 1Q 16.5 15.9
2Q 17.1 16.3
3Q 17.5 16.7
4Q 16.7 16.7
2003 1Q 16.4 16.8
2Q 16.1 16.4
3Q 16.4 16.2
4Q 16.2 16.2
2004 1Q 16.4 16.2
2Q 16.3 16.3
3Q 16.3 16.3
4Q 16.3 16.2
2005 1Q 16.1 16.1
2Q 15.8 16.1
3Q 16.7 16.2
4Q 16.9 16.3
2006 1Q 16.3 16.5
2Q 16.2 16.5
3Q 15.4 16.2
4Q 15.1 15.7
2007 1Q 15.4 15.5
2Q 15.6 15.3
3Q 16.4 15.6
4Q 16.2 15.8
Note: Seasonally adjusted rates are based on factors from the Federal Reserve for the U.S. market and applied to entire North America. Source: WardsAuto.com