Automakers Hold Divergent Views of U.S. Auto Market

As the U.S. reluctantly enters a downturn of what has been the heartiest economy in recent times, automakers are taking two tellingly different views on what kind of sales year they expect.

Some talk of light vehicle sales falling by as much as 1.5 million units from last year's 17.35 million record-breaker. Others are looking forward to the third-best sales year in the market's history. Though the two perspectives are not mutually exclusive, they portend very different sales outcomes for individual automakers.

The Big Three are taking the cautiously pessimistic approach, forecasting a slide in sales. Ford Motor Co. plans to build 1.05 million cars and trucks in North America during the first quarter, down 220,000 — or 17% — from first quarter 2000. Analysts see drops for General Motors Corp. and DaimlerChrysler AG's beleaguered U.S. unit as well.

The Big Three's losses could prove to be a gain for foreign automakers. Asian car companies, whose products dominate when it comes to economy and practicality, see North America's weakening market as an opportunity.

Upscale European automakers likewise are hopeful, operating under the theory that the wealthy are the last to be impacted when the economy eases off. But even this segment has become more frugal.

Mercedes-Benz's least-expensive U.S. entry, the under-$30,000 C-Class coupe, is expected to help maintain sales momentum. And last year marked the first time Toyota Motor Corp.'s Lexus Div. and its lower-priced luxury vehicles nudged past Mercedes-Benz to steal the luxury sales crown.

January sales this year showed first proof of such forecasts: While the Big Three lost market share, from a collective 67.1% in January 2000 to 64.8%, Asian brands rose to 30.6% from 28.1% year-prior. European entries held steady at 4.6% of the market.

Korean automakers, in particular, showed spectacular promise, with Hyundai Motor Co. Ltd. sales rising 44.3% in January over same month 2000, and Kia Motors Corp. sales up 47.8%. Korean makes are finding success at the market's low end with small sedans, hatchbacks and compact sport/utility vehicles (SUVs) — traditionally Japanese strongholds.

Japanese automakers, meanwhile, have expanded from sedans into segments traditionally owned by the Big Three, such as SUVs and fullsize trucks. All Japanese carmakers feel well positioned to take advantage of the expected emergence of more price-conscious consumers.

“We're coming to a period of perhaps an excessively heated market that has been operating at a higher level than the state of economic indicators would forecast,” says Jim Press, chief operating officer at Toyota Motor Sales U.S.A. Inc. “So there's got to be a decline. The decline feels very difficult because it's a lower level than we experienced last year, but it's a soft landing.

“It's bringing the industry level more in line with the basic underlying strengths of our economy, which would allow us to sustain growth moderately for the next couple years.”

Toyota expects its sales to rise by 2%, or 30,000 units from last year's 1,619,000 units. Honda Motor Co. Ltd. forecasts a 3.5% increase over last year's record-setting 1,158,860 million vehicles. Mitsubishi Motors Corp., banking on momentum generated from a 65% sales rise over the last two years and the promise of five new or completely redone vehicles in the next five years, expects a 5% uptick.

“We had our downturn three years ago when we were going out of business,” says Mitsubishi's U.S. Chief Executive Pierre Gagnon. “We had to change the way we did business and fundamentally changed the whole company.”

Even Mazda Motor Corp., which has been struggling worldwide, anticipates a larger piece of the pie. “I expect our share at Mazda to grow,” says President Mark Fields. “We're at a 1.5% share now. It's going to be reasonable growth.”

For the Japanese automakers, whose parent companies have endured years of economic recession in their domestic market, weathering the U.S. storm must seem like a walk in the park. Says Carlos Ghosn, Nissan Motor Co. Ltd.'s charismatic turnaround chief: “There is no problem at a car company that a good product can't solve.”

Nissan, boasting the best financials in a decade after a no-holds-barred cost-cutting restructuring program, is not worried about a possible recession that would halt progress. The automaker, to the contrary, says it never planned to execute its revival in such a robust economy.

Nissan plans to bring 10 new models, including a fullsize pickup and fullsize SUV, to the U.S. by 2003 and is investing in a new $930 million assembly plant in Canton, MS. It also is hiking its Xterra SUV production to 100,000 units annually, from current levels of 75,000.

Toyota, meanwhile, believes the economy is bringing consumers in line with its own products, and that its several new vehicles can help the automaker sustain growth in a period of relative decline. Toyota last year expanded its truck lineup to include the Sequoia fullsize SUV, Highlander crossover-utility vehicle and second-generation RAV-4.

Some analysts predict that the truck segment will be among the first hit during a sales slide, as consumers become more concerned about their pocket books and rising fuel prices. But Toyota, whose vehicles usually are less-expensive and more environment-conscious, isn't worried.

“If you were going to buy a vehicle like that (SUV), and you are looking at fuel economy, then you'd pick our vehicle. So we'd actually draw more customers into our dealerships,” a confident Mr. Press says.

Honda also hopes to play well in the non-car arenas on the popularity of its Odyssey minivan and CR-V small SUV, as well as the first full year of Acura MDX SUV sales. But the No.2 Japanese automaker expects to triumph through its core strength, the sedan segment.

“We're still very bullish on sedans,” says Dick Colliver, executive vice president of American Honda Motor Co. Inc. “We think the sedan market is very, very strong. Our forecasters say the sedan market is going to come back in 2002, and we're trying to keep ourselves in position to take advantage of that.”

If the sedan market does make a comeback, all foreign makers stand to benefit. Toyota's Camry midsize sedan has been the No.1 selling car in the U.S. for four years running, followed by Honda's Accord. Mitsubishi, despite the popularity of the Montero Sport SUV, does two-thirds of its sales in the car segment.

The Japanese automakers also are plunging into the new crossover segment — with most entries taking the form of small car-based utility vehicles that resemble yesterday's hatchbacks more than today's SUVs. Toyota this year will begin production of the Matrix crossover, and Mitsubishi promises to build its ASX crossover concept first shown at the North American International Auto Show.

Like the Asians, European automakers have a decidedly optimistic view for 2001. Most are taking a wait-and-see approach, balancing positive forecasts with pragmatism. “Normally you see the premium sector somewhat insulated from the bigger swings in the marketplace,” says Jonathan Browning, Jaguar Cars Ltd.'s managing director. “(But) the premium sector is also very sensitive to what happens on Wall Street.”

Jaguar, like other European automakers, is banking on new products to help it weather any storms that pop up during the year. “The U.S, as it's such a large market, is the most critical one,” Mr. Browning says. “We're not very downbeat about that, but we need to see how that unfolds.”

The Jaguar executive estimates the U.S. market this year will see annual light vehicle sales of between 16 million and 16.5 million units, with the first two quarters being the roughest. Things should smooth out by the second half. “We'll get a lot of attention around the X-Type launch and the momentum associated with that,” he says.

The optimistic Wolfang Reitzle, president of Ford Motor Co.'s Premier Automotive Group (PAG), told journalists early in the year that he isn't worried about a slowdown. “Sure, there might be a downturn in the market from time to time,” Mr. Reitzle says. “So what? I mean the underlying business structure for our industry is absolutely robust and, therefore, it will grow.”

After seven years of super sales, a 10% to 15% drop isn't a concern to him. It's short term, and the industry has to cope with it, he says. “It has nothing to do with the long-term sustainable growth we will see.”

That includes the two newest members of the PAG group — Volvo and Land Rover — which are looking forward to growth in 2001. Volvo is moving into the year with guarded confidence, says Hans-Olov Olsson, chief executive of Volvo Cars. “We believe that we will make more sales this year than last year in the U.S.,” he says. Volvo hit an all-time high with 123,178 units sold in the U.S. in 2000. Mr. Olsson expects sales this year to reach 140,000 units.

Land Rover is looking toward a 10% increase in the year, says Matthew Taylor, Land Rover director of marketing and sales. The automaker hopes to increase its sales from about 27,000 units to 30,000, thanks to an expected rise in Discovery sales, plus the introduction of the Freelander small SUV bowing later in the year. The automaker will follow with a new Range Rover and the reintroduction of the Defender — all together helping Land Rover to more than triple its sales. “To be a player here, we have to be looking at 100,000 (sales),” Mr. Taylor says.

Mercedes also is banking on new products to sustain growth during the year. The German automaker set a new record in 2000 by selling 205,614 vehicles. Juergen Hubbert, board member in charge of Mercedes passenger vehicles and Smart expects the success to continue. “We expect to be a little better than 2000,” he says.

Much of his forecast hinges on new additions to the C-Class family. Both the C-Class coupe and station wagon hit dealerships later this year. The coupe is the automaker's least-expensive vehicle at under $30,000. “We are very positive this car will give us a boost in the entry luxury segment,” says Burkhard Osthaus, general manager, passenger cars and light trucks for Mercedes' U.S. sales division. The station wagon, meanwhile, represents Mercedes' first U.S. foray into that segment. Mercedes expects to sell about 65,000 C-Class cars — including the coupe, wagon and sedan — in the U.S. by the end of next year, double the number (about 34,600) of C-Class cars sold here last year. “As of now,” says Mr. Osthaus, “we simply can't get enough product out of the segment.”

Volkswagen AG's Audi division expects to repeat its double-digit growth in the North American market this year, Len Hunt, vice president of Audi of America Inc., said during the Detroit auto show. But parent VW may not be so lucky. January sales were down 15.5% due to a decrease in sales of the Jetta, Passat and the New Beetle. The company says the downshift is due to the “accelerated build-out of the Passat model, which led to shortages.” A new face-lifted Passat arrived in dealerships in late February.

Traditionally hesitant to forecast future sales, BMW AG officials have said they are quite optimistic about 2001. If the market can hit 16.5 million or 16.7 million units, it will still be strong, says Helmut Panke, BMW board member in charge of finance.

“There is no fundamental problem (with the market),” he says. “Of course, if a manufacturer doesn't have the right product, that company will have to work hard. So we're going to see wide difference in the performances — some will do very well, and others will have to get their acts together.”