2nd Quarter Uptick

The second quarter will bring some slight growth to U.S. light-vehicle sales, while slowed production rates will drive down inventory to a 2-year low.

Ward's is projecting sales from April to June to be up less than 1% from year-ago and the seasonally adjusted annual rate (SAAR) to rise to 16.7 million from like-2004's 16.5 million. The first-quarter SAAR, including an estimate for March, is pegged at 16.3 million, compared with like-2004's 16.5 million.

The 6-month SAAR through June will be the same as prior-year at 16.5 million.

Assuming the economy remains relatively strong, incentives will have the biggest impact on the quarter. Whether sales end up or down from year-ago will depend on the size of incentives and how successful they are at enticing consumers.

The industry leaders, General Motors Corp. and Ford Motor Co., likely will raise the incentives bar somewhat just to maintain the weak market shares they posted through the first two months of the year.

Of the major auto companies, only Toyota Motor Sales U.S.A. Inc. and Nissan North America Inc. can expect strong sales growth in the period.

DaimlerChrysler Corp. is forecast to post a less spectacular but still solid gain supported by the strength of its LX vehicles and higher incentives. DC's Mercedes luxury unit also should boost the company's sales in the second quarter, with the redesigned M-Class.

American Honda Motor Co. Inc. already has indicated it may dip deeper into the incentives trough if demand does not pick up. Honda's sales are projected for a downturn in the second quarter, as many of its core products are aging.

After falling below year-ago levels in March for the first time since September 2002, U.S. light-vehicle inventory is forecast to end the second quarter at 3.92 million units, 5.9% below year-ago, and slightly above 2003's 3.89 million units.

Inventory of domestically produced vehicles is forecast at 3.34 million as of June 30, 4.2% below year-ago. However, the forecast is based on manufacturers' production schedules. Inventory could end the quarter even lower, however, as it is likely the industry will not build to schedule unless sales surpass the forecast.

With incentives not packing the punch they have in the past, manufacturers with excess stocks may rely more on slower production to cull inventory. Third-quarter North American output, therefore, likely will fall below year-ago levels.