Bracing for the Inevitable

After 7 years of strong sales, automakers get ready for a downshift in demand

With wonderfully dry humor, James P. Holden, the now-fired CEO of the Chrysler Group, summed up the year 2000 beautifully: "The first half of my tenure was better than my second," he said with a sardonic smile, even though he didn't know at the time that his 12-month stint as head of the Chrysler group would end 11 days later.

Even so, he knew better than anyone that the economic climate in North America was beginning to take an ugly turn. His experience pretty much sums up that of the entire North American auto industry: The best year ever is ending on a sour note.

A German management team from Stuttgart is coming in to officially take over the Chrysler part of DaimlerChrysler, amid much bitterness over recent comments by DC AG Chairman Juergen Schrempp. Ford continues to grapple with the Firestone tire crisis and its money-losing international operations. GM increasingly is faced with the choice of offering giant incentives or laying off assembly workers.

It was hard to imagine such an ignominious end during the year's first half, when cars and - especially - trucks were selling at a faster rate than ever before. The strength was especially surprising early in the year because most analysts were projecting the market to weaken after a recorded 17 million sales in 1999. That was before Chrysler started hemorrhaging money, before tread separations on Ford Explorers became national news, and before GM's falling market share and overcapacity forced it to start selling cars like couches: No money down and no payments for a year!

Now, in the final weeks of 2000, everyone is beginning to believe the party finally may be ending. Sales are slowing, even with incentives as high as $3,000 or $4,000 per vehicle, and fourth-quarter profits are expected to be hit hard. That's caused Wall Street analysts to lower their profit projections for next year and caused already depressed auto stocks to take another hard bounce.

But, it's hardly a gloom-and-doom scenario. As you'll read in the following pages, GM, Ford - and Chrysler - do have lots of cash to weather a tough downturn if it comes. Plus Canada and Mexico are looking forward to a good 2001. So are the big foreign-owned players in North America: Toyota, Honda and Nissan. As GM, Ford and Chrysler look at pulling back, the so-called transplants are investing heavily with new plants and new products. Even though the truck market is thought to be nearly saturated, analysts expect 1.5 million more units of capacity will be added in the next three years. If a slowdown comes, some suppliers are looking forward to it.

Sooner or later, something has got to give ... and it just may start giving next year.