By Jeff Vedders

With the North American Auto Show in full swing this month, and with the recent update of the Standard and Poor’s Auto and Auto Parts Survey, we thought this would be a good time to look at the projected outlook for the industry for 2004.

Standard and Poor’s is anticipating sales of 17.1 million units in 2004 over 16.5 million units in 2003.  Also, according to economists’ reports earlier this month, the Big Three expect sales to increase for the first time within the past four years.  However profits are not likely to follow.  It appears that consumers may have been trained to expect incentives, and they will in turn wait for these incentives before buying a car.  In fact, from January 2002 to November 2003, average incentives rose from $1,409 to $2,386, and whenever incentives were cut back, sales slowed.

Incentives make vehicles more affordable, so consumers are using them to buy a higher class of vehicle or to purchase additional features and options in their vehicles.  The proportion of luxury vehicles sold in the U.S. is going up.  According to Ford, approximately 10% of its 2003 sales will be premium branded, which is up from 6% in 1996.  Incentives are also having a negative impact on used vehicle prices by making new vehicle prices much more attractive.  This in turn may hurt manufacturers, as vehicles coming off of a lease are worth less than the manufacturer originally intended.

Standard and Poor’s also projects limited growth in the U.S. replacement parts market in 2004, as improved quality of original parts has reduced the need for aftermarket parts.

Sales of hybrid vehicles (hybrid vehicles run on gasoline and electricity) are increasing.  According to Standard and Poor’s, Toyota, the leader in development and commercialization, has three models in production and anticipates three more for the 2005 model year.  Toyota sold 140,000 hybrids globally between 1997 and mid-2003.  Within the next few years, Toyota plans to sell 300,000 hybrid vehicles worldwide each year.  J.D. Power and Associates estimates the U.S. market for hybrid vehicles will reach 500,000 units by 2008.  Based on these projections, other automakers including Ford and General Motors plan to release hybrids in 2004.

Standard and Poor’s expects Toyota’s market share increases to continue, eventually overtaking Chrysler in the U.S. market and taking over Ford’s number two spot globally.  General Motors is currently number one globally.  However, even though Toyota is currently number three globally in sales, they are number one globally in profitability.

Globally, China’s automotive market continues to grow at a fast rate.  According to Standard and Poor’s, for the first nine months of 2003, production rose 87% and sales increased 69% compared to 2002.  The Chinese market is also profitable.  The China Association of Automobile Manufacturers (CAAM), estimates sales in 2003 to rise to $93 billion with profits exceeding $7.2 billion.  At current growth rates, in 2005 China could become the fourth largest vehicle maker, behind the U.S., Japan and Germany.  As a result, General Motors, Ford, Volkswagon, and Toyota have all announced plans to increase output or open new facilities with joint venture partners.


“Auto & Auto Parts,” Efraim Levy, CFA, Standard & Poor’s Industry Surveys, December 25, 2003

“Car Sales to Surge, but Not the Profits,” Jamie Butters, Detroit Free Press, January 7, 2004