Panic Unwarranted

Nobody has much good to say about next year's U.S. auto market.

Analysts' forecasts for 2006 U.S. light-vehicle sales are all over the map, but one aspect is consistent: All have a minus sign and a numeral or two followed by an uncomfortable bunch of zeros.

Most forecasts seem to converge around a U.S. light-vehicle sales decline of about 400,000 units next year, but some predict more. A potential half-million units out of the market seems like it would present cataclysmic consequences.

But simply by the numbers, even a 500,000-unit sales decline would be a mere blip compared with some of history's worst year-over-year market slides.

At the end of October, Ward's 2006 U.S. light-vehicle sales forecast called for 16.7 million units. Because of large swings in sales and inventories, the forecast changes almost daily, but that number represents a drop of 400,000 units from Ward's forecast of approximately 17.1 million units as this year's final tally. A general economic slowdown is the chief factor in next year's almost-certain large sales decline.

Global Insight senior analyst Rebecca Lindland pegs next year's U.S. sales at 16,522,000. She says that's a drop of about 400,000 units from the firm's prediction for this year of about 16,947,000.

Lindland says overall energy prices and pull-ahead sales driven by 2005's deep incentives will combine with a general drop in consumer confidence to dash auto-industry performance. Global Insight's predicted drop of about 2.5% is indicative of most moderate to mildly pessimistic forecasts for 2006 light-vehicle sales.

That amount undoubtedly will be painful for the besieged U.S. auto industry, but it pales in comparison with 1974, when the U.S. market lost a staggering 2,950,817 sales from 1973 levels. That tailspin, the worst-ever year-over-year decline, represented nearly 21% of the prior year's total.

Few recall 1974 as the model year that ushered in the term “sticker shock,” says John Walkonowicz, analyst-North America, for Global Insight and an authority on the history of the U.S. auto market.

He says sticker shock — an almost unprecedented industry-wide price hike — combined with consumer jitters over energy prices to generate 1974's huge sales decline of nearly 3 million units.

History's second-worst sales drop came just six years later, in 1980. An astounding 2,536,363 fewer light vehicles were sold vs. 1979, a precipitous 18.5% slide.

That year marked the height of the second energy crisis but also was the year the former Chrysler Corp. publicly flirted with bankruptcy, causing a drastic market aversion to Chrysler-brand vehicles.

Rounding out the top-three worst sales declines in the U.S was 1956, losing 1,583,656 from '55, a model year known for many successful and highly regarded new models from each of the domestic Big Three auto makers. Many of those '55 models have become hallmarks of the era and collector favorites.

So if 2006's light-vehicle market lives up to forecasts and drops 400,000, or even a half-million units, remember it could be a lot worse — and it has been.