Editorial

The Boom Can't Go on Forever, Can it? A 17-million three-peat probably isn't in the cards Once again we are poised at the beginning of what we now very loosely call the "new model year," which used to officially kick off on the first of October. That means it's time to dust off the cliches about tarot cards, dart-boards and crystal balls and even make an educated guess or two about what vehicle sales will be in 2001.

There once was a time when forecasters and pundits would simply argue over whether sales would go up or down in the coming year. Now, after so many years of strong sales, forecasting has turned instead into a hand-wringing, angst-ridden affair where everyone looks around nervously and says: "These good times can't go on for yet another year - can they?"

Then, to the chagrin of all the conservative forecasters, the numbers go up again.

That was the case last year at this time. With sales closing in on 16.9 million units in the U.S. - an all-time sales peak - few prognisticators thought it possible the meter could be pegged again in 2000. Yet that's exactly what's happening. Standard & Poors DRI predicts sales of 17.5 million by year end, well above last year and the previous record of 16.1 million set in 1986.

Near the end of last year, sales oracles pointed to the fear of rising interest rates, high consumer credit-card debt and Y2K issues as reasons why sales would probably "slump" to 16 million or 16.5 million units in 2000. After all, how many SUVs, Mercedes-Benzes and Volkswagens could Americans buy?

The answer: a lot more than anybody expected. Instead of slowing down, sales from January to April of this year surged ahead at a blistering seasonally adjusted annual rate (SAAR) of more than 18 million units a year.

Chris Cedergren, an automotive analyst at Thousand Oaks, CA-based Nextrend, says the U.S. car market's "irrational exuberance" springs from a new fearless consumer who doesn't know or doesn't remember the pain of salary cuts or long-term unemployment.

He says most of today's car buyers didn't suffer through the Great Depression, and the recessions of the early 1980s and 1990s are distant memories. Moreover, a white-hot job market gives consumers the confidence to continue spending lavishly without worrying about losing a job and not being able to find a new one.

Will 2001 surprise most of us again with 17-million U.S. sales?

Even the optimistic Mr. Cedergren isn't talking three-peat. Instead he falls in line with many other analysts with a prediction somewhere north of 16 million.

Standard & Poors DRI, which works closely with the Statistics and Database Operations of Ward's Communications, predicts 16.6 million light vehicle sales in 2001.

Diane C. Swonk, chief economist at Bank One Corp. in Chicago, says sales ought to be in the 16.5 million range, 400,000 units higher than she predicted for 2000 last year. A slowdown in the housing market freed up funds for spending on vehicles this year and helped drive stronger-than-expected sales. That trend should continue in 2001, she says. Carmakers' willingness to subsidize sales with big incentives also will drive the market next year, she says.

Haig Stoddard, our resident number cruncher on the statistics side of Ward's, says the pace has slowed significantly since April. Sales fell from the same year-ago month in May for the first time since August 1998 and basically have been flat since then, compared with the same year-ago months. What's more, sales have stayed even with year-ago levels only because of increased incentives, he says.

Adding to the bad news for Detroit-based automakers is the fact that sales of extremely profitable big SUVs such as the Ford Expedition and Chevy Tahoe have topped out. Rising fuel prices may have cooled their appeal, but experienced market watchers say the demand for such big vehicles has simply reached its limit.

In October 1999 I used this space to announce that after three straight years of predicting slower sales and being wrong, I was going to ditch my faulty "this can't go on forever" strategy. Instead I delivered a weasel-worded optimistic forecast: "I would not be surprised at all if we hit 17 million sales in 2000."

My rationale was based solely on the fact that some potent new products were coming to market in 2000, the Ford Explorer Sport Trac, Chevrolet Silverado and DaimlerChrysler PT Cruiser among them.

Those products - along with dozens of others, and a growing percentage of Japanese, European and Korean nameplates - indeed added spark to 2000.

The '01 model year has its potential stars, too, as you'll see in our new model roundup beginning on page 60. But many this year seem just a little too pricey, heavy, or over-the-top to set the market on fire. The Pontiac Aztek is a classic example. This year's wannabe PT Cruiser, it's already off to slower-than-hoped-for start. With some hefty incentives, I suspect the Aztek and its sibling Buick Rendezvous may find a following, but there will be no waiting lists. I'll go with the pack this year and predict sales of 16.5 million units. After all, this can't go on forever.