Expect April-June Uptick

The second quarter will bring modest growth to U.S. light-vehicle sales, while slowed production rates will lower inventory levels to a 2-year low by June.

Ward's is projecting some growth in sales with volume in April-June up less than 1% from a year ago, and the seasonally adjusted annual rate (SAAR) up 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 to like-2004's 16.5 million.

The 6-month SAAR through June will be the same as year-ago 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 how much manufacturers increase incentives and how enticing they remain for consumers.

Industry leaders General Motors Corp. and Ford Motor Co. are likely to raise the incentives bar just to maintain the weak market shares they posted through the first two months of the year. Ford needs its so-called “Chicago-made” products — mainly the Five Hundred and Freestyle — to catch fire to stave off more generous sales spiffs.

Of the major auto companies, only Toyota Motor Sales U.S.A. Inc. and Nissan North America Inc. are forecast to record strong sales growth in the period. DaimlerChrysler AG is forecast to post a less spectacular but still solid gain supported by a combination of higher incentives and continued strength of its LX vehicles — including the all-new Dodge Charger that goes on sale soon.

DC's Mercedes-Benz unit should also start helping the company's sales in the second quarter after the redesigned M-Class becomes available.

American Honda Motor Co. Inc. already has indicated it might become a bigger player in the incentive game if sales do not pick up. Honda's sales are projected for a downturn in the second quarter, as many of its core products are well along in their current product cycles.

Meanwhile, after falling below year-ago levels in March for the first time since September 2002, 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 just domestically produced vehicles is forecast at 3.34 million as of June 30, 4.2% below year-ago. However, the inventory forecast is based on manufacturers' production schedules. It's likely the industry will not build to schedule for the quarter unless sales start running above forecast, and inventory could well end the quarter even lower.

Inventory of domestically made vehicles will still be up to 300,000 units higher than necessary at the end of the quarter. That probably means there will be some sort of third-quarter blowout.

If incentives fail to pack the punch they had, manufacturers with excess stocks are likely to continue relying more on slower production to cull inventory. So third quarter North American output is likely to be below year-ago levels.

Haig Stoddard is manager of industry analysis for Ward's Communications.

Ward$s U.S. Second-Quarter 2005 Light Vehicle Sales Forecast by Company