Bleak outlook for US carmakers

US car factories fear closure due to the slowdown

Idle factories and plummeting sales looks set to dog the US car industry during the year ahead.

And carmakers such as General Motors (GM) and Ford will be particularly hard hit by the slowdown in the US as they were relying on this market to offset losses in ailing Japanese and European markets.

The trend became apparent in January when both DaimlerChrysler and GM announced temporary closures of factories, and GM reported sharply lower sales figures.

"My instinct is that old-fashioned cars will lead the downturn in the US economy

Prof. Karel Williams,
University of Manchester

Some experts are predicting that US car sales will fall by 20% over the next three years - around 3.5m less vehicles will be sold.

"My instinct is that old-fashioned cars will lead the downturn in the US economy, and there will be big problems for all the major car firms," Professor Karel Williams of the University of Manchester told BBC News Online.

Diving sales

The negative forecasts followed the shocking December sales figures of GM, which were 17.9% lower than the previous year.

It's not a meltdown, but a re-adjustment

Prof. Garel Rhys
Cardiff University Business Centre

Car makers are some of the first hit when an economy slows as people decide to save spare cash rather than spend it on big investments.

And far fewer people will be able to afford new cars this year because of the lack of wealth generated from investments in the falling stockmarkets last year.

GM has seen its sales fall since May, but December's fall was unprecedently sharp signalling the speed-up of the slow-down.

The sliding number of car sales is expected to gather pace during 2001, and then slump even more drastically in 2002 and 2003.

But the falling sales have come after record high car sales of 17.5m cars in 2000, the culmination of an 11-year boom.

The year-on-year fall in GM's American sales

January +11.5%

March +1.5%

June -5%

September -3.5%

December -17.9%

"It's not a meltdown, but a re-adjustment of production levels after a boom," Professor Garel Rhys of Cardiff University Business School told BBC News Online.

But the re-aligning of production to reflect weaker demand will hit factory workers hard.

Both DaimlerChrysler and GM have already announced temporary factory closures, and Ford is expected to follow suit.

But Ford is better positioned than its main US competitors, since around 50% of its revenue is generated from outside of the US.

Diminishing profits

The end of a boom may not initially sound like drastic news for the US' three leading carmakers; GM, Ford and DaimlerChrysler.

Marketshare of traditional car sales in North America

GM - 28%

Ford -19%

Chrysler - 8%

Japanese firms - 40%

Other firms -15%

But these carmakers have been suffering from tight profit margins even during the boom, and have also taken losses in the stagnant Japanese and Euroepan marketplaces.

"It's a story of saturated, mature markets where you can't make any money, even with record levels of demand," said Prof. Williams.

US carmakers have previously relied on their home country to bring in profits, offsetting some of the losses elsewhere.

The downturn in US sales could then generate globally tough times and cause GM and Chrylser in particular to lose a great deal of money.

Japan's biggest carmaket Toyota will also suffer since it makes around 85% of its profits from US sales.

And the US car industry faces further fears from the threat of environmental legislation aimed at curbing car-usage.