The good times won't be rolling so smoothly in 2001 for the auto industry after back-to-back, record-setting sales years that started in 1999, experts warn. Advertising could take a hit.
Car and truck marketers are expected to sell between 500,000 and 1 million fewer vehicles, or some 16 million units, this year vs. 2000, said Susan Jacobs, president of consultancy Jacobs & Associates. But a crucial problem is a wave of new products, since no marketers are dropping their own sales targets.
"They're going to find inventory pressures," she said. Still, she projects a soft landing for automakers, since the drop in sales won't be as dramatic as the 4 million loss in year-to-year unit sales in the last downturn of the early '90s.
Industry experts predict 2000 sales will top 17 million units, besting 1999's record-setting 16.95 million units. Despite the falloff, 2001 is still expected to be the industry's third-best year in history, said Jim Hall, VP-industry analysis at consultancy AutoPacific.
But robust sales mask profit and inventory problems, since profitability per vehicle generally will continue to slip as incentives rise.
John Casesa, auto analyst at Merrill Lynch, said, "The best-case scenario is the industry will have a very painful two-to-three quarter inventory correction."
That's because, he said, manufacturers are making more vehicles than they can sell. From May through November of 2000, the days' supply of unsold vehicles rose to 77 days. But General Motors Corp. had a 103-day supply, Ford Motor Co. had an 80-day backup and DaimlerChrysler's Chrysler Group had a 78-day supply. In comparison, inventory was from five to 15 percent below normal from December '99 and April 2000.
Although GM announced production cutbacks in December, Mr. Casesa said the auto giant still has about 35 percent of the industry's U.S. capacity while it maintains a market share of roughly 29 percent. He predicts GM will rejigger production this year.
Ad budgets likely will take a hit as automakers struggle to contain costs. GM, for one, is looking for efficiencies from its new consolidated media planning agency, Bcom3 Group's GM PlanWorks, Detroit. The automaker can also save ad dollars for brand Oldsmobile, since that division is being phased out. GM spent $330 million on Oldsmobile in measured media in 1999, according to Competitive Media Reporting.
Execs close to GM said new or redesigned vehicles will get sufficient ad launch funds as the budgets of older vehicles are sliced. Two execs said the Cadillac Escalade launch budget for early next year had been trimmed by at least $1 million.
GM declined to discuss its 2001 ad budget.
Embattled DaimlerChrysler is under more pressure as it labors to fix its money-losing Chrysler Group. DaimlerChrylser last month warned of an expected $1.25 billion fourth-quarter operating loss at Chrysler Group, more than twice the $512 million loss it posted in the third quarter.
Arthur "Bud" Liebler, senior VP-marketing for Chrysler Group, said his 2001 ad budget will dip a bit this year vs. 2000. Chrysler Group, marketer of the Chrysler, Dodge and Jeep brands, is looking for media to share its pains: It has asked magazine publishers to keep 2000 rates in '01 - with no guarantee of revenue or number of pages.
According to a media agency insider, Chrysler pulled back advertising on the print side and most likely on the TV side, and GM pulled back on TV by exercising options. "Renegotiate might be too a strong word. They are having significant pullback issues in terms of trying to reduce their spending," said an insider. The insider does not believe any holds were dropped. "The upfront was ordered back in August, so it's no longer a hold."
"If there are a million units in reduced sales, as has been reported, it would seem to me that they have to pull back on advertising to some extent. They can't support the volumes," the insider said. "It's conceivable that the first quarter may be an anomaly, because I think they are going to [be] reasonably strong in the second quarter to support [product] launches."
Copyright January 2001, Crain Communications Inc.