Detroit Auto Show: Does Optimism Outstrip Reality ?

DETROIT January 6, 2003; Greg McCune writing for Reuters submitted his opinion: "A funny thing was happening at the world's most important auto show this week. Nearly all the major carmakers were predicting U.S. sales would increase in 2003, and many forecast market share gains as well.

Not one automaker admitted that its sales or market share would fall in 2003 even though most analysts predict a decline in U.S. light vehicle sales from 16.8 million in 2002, which could set off a vicious zero-sum game among manufacturers.

Ford Motor Co., however, said it expects its market share to remain flat.

The boundless optimism for 2003 in the face of a hesitant U.S. economy, the possibility a war in Iraq and brutal auto price discounting amused even some top automotive executives.

"By the end of the week if you add up all the volume projections from the manufacturers it will total a North American market of 21 million," said General Motors Corp Vice Chairman Bob Lutz, referring to a figure well above what most experts see as reality even with Canada and Mexico included.

MARKET SHARE PINS

Amid the Hollywood-style glitz of automakers showing off their latest designs at the Detroit international auto show, GM executives were sporting pins that advertised "29," which is the company's "stretch" goal of reaching 29 percent market share in the United States.

Nothing has pleased the world's largest automaker more than the increasing of its market share in the home market for two consecutive years, most recently a gain of 0.3 percentage point in 2002 to 28.4 percent.

GM is not shy about how it grabbed that market share, either. It launched the "zero financing" gambit after the September 11, 2001, attacks to draw shocked Americans into showrooms, and has not looked back since. It carried Detroit's auto price war into 2003 with a new round of special offers launched last week.

While sales were boosted by discounting, the other side of that coin was a decline in profit margins. In March, GM revised its bonus plan for top executives, acknowledging that it was unlikely to meet its target of a 5 percent net profit margin.

GM is hardly alone in Detroit in its sales optimism. The No. 3 U.S. automaker, the Chrysler arm of DaimlerChrysler AG, on Monday predicted its first market share increase in the U.S. market in at least four years for 2003, up from 13.1 percent in 2002.

Chrysler has been the least enthusiastic of the "Big Three" Detroit automakers about the discounting craze. It is counting on new and reworked vehicles such as the Chrysler Crossfire sports car and Chrysler Pacifica wagon to boost sales.

"We're shooting in '03 for about a half a share point or more gain (in market share)," Chrysler's head of sales and marketing Jim Schroer said in an interview with Reuters.

HISTORY A GUIDE?

If history is any guide, Japanese automakers have been closer to the mark in their sales growth optimism at the auto show. They have been increasing U.S. market share for years and 2003 is unlikely to be any different as they roll out new models in lucrative markets such as Sport Utility Vehicles.

Honda Motor Co., the second-largest Japanese automaker in the U.S. market, said it hopes to increase U.S. sales by 8 percent year-on-year. In 2002, Honda boosted its market share to 7.4 percent from 7.0 the year before.

The No. 3 Japanese automaker in the United States, Nissan Motor Co., said it expected more growth after a 23 percent jump in volume in 2002. "With the new models coming out this year, we'll see another uptick in sales," Mark McNabb, vice president of the Nissan Motor Co's Infiniti division, told Reuters. Nissan had a 4.4 percent market share in 2002.

Mitsubishi Motors Corp said it is confident of growing its U.S. sales volume by another 7 percent this year. The fourth largest Japanese seller in the American market will launch four new models in the next 12 months, beginning with the all-new Endeavor crossover SUV. Its share of the market was 2.1 percent in 2002.

FORD "FLAT"

The one automaker unwilling to make bold predictions this week is Ford, the battered giant which saw its market share in the U.S. fall to 20.2 percent from 21.9 in 2002.

The aim at Ford is to stabilize market share in 2003 after two tough years at the world's No. 2 automaker.

"I think our share will be relatively flat (this year). There's more competition but we're a pretty strong brand," Ford's head of North American sales and marketing Jim O'Connor told Reuters in an interview.

Ford has been reeling for more than a year from a string of setbacks, and GM's incentives onslaught has only added to the pain. Ford on Monday responded to GM's latest incentives salvo with its own package of cash rebates of up to $3,000 on some new vehicles, or zero financing ranging from three to five years on some models.

"Once they (GM) move, if you don't move ... you're going to be in trouble," O'Connor said.

He estimated that for every tenth of a percentage point of market share gain, the big automakers get $100 million in profits. But O'Connor said that Ford calculates GM spent $300 million on incentives in December alone, offsetting the profit gains it got from market share increases in 2002.

"They (GM) have a big ego thing to run their (market) share .... Obviously, they have a big cash flow demand for their pension fund," O'Connor said, referring to the rising demands of funding pensions for retired autoworkers that have hit GM as well as Ford.