TCC's Daily Edition: 10/03/01

October 2, 2001

SEPT. SALES GOOD AND BAD
September’s domestic auto sales figures were good-news, bad-news numbers depending on how you wanted to look at them.

*Sales were down, but not as far as some had predicted. Analysts had expected a sales decline of 12-15 percent, but when the numbers came out, sales were down only 9.1 percent compared with September 2000. General Motors was off a mere 3 percent, while Ford fell 9.9 percent, and the Chrysler Group was off 28 percent. Chrysler’s decline seems steep, but it’s compared to a very strong September 2000, when the company was heavily discounting its minivans and other vehicles to clear out bloated inventories.

*Incentives brought traffic and serious buyers into the showrooms in the wake of the Sept. 11 terrorist attacks on New York City and Washington, but the zero-percent financing deals automakers are offering will end up eroding their profits. For example, Ford said that because of the new round of incentives, its marketing costs rose 10 percent in September. That combined with a 35-percent drop in sales to its rental subsidiary means that Ford will now lose more than 10 cents a share, or $189 million, in the third quarter.

*And even though most foreign automakers posted flat or slightly higher sales, U.S. automakers reclaimed some market share from the imports – the number jumped to more than 60 percent. A month ago domestic automakers' saw their market share fall to an all-time low of 58.7 percent, excluding their import brands.

Finally, despite reports of waning consumer confidence, September auto sales worked out to 15.9 million units on an annualized rate. Still, because sales were so good earlier in the year, 2001 will still likely turn out to be the third best sales year ever. Economists and analysts are predicting a difficult fourth quarter for auto sales, but expect sales to pick up again in early 2002.

Here are the numbers: GM sold 384,266 vehicles. Car sales fell 13.9 percent, but GM's light-truck sales were up 10.2 percent, boosted by strong sales of its new sport-utility vehicles. GM sales do not include Saab or Isuzu. Ford's September sales, excluding its import brands, fell 9.9 percent, to 282,438. Car sales were off 11 percent, while truck sales dropped 9.2 percent. The Chrysler Group had sales of 152,165. Car sales fell 22 percent, while trucks were down 30 percent. Meanwhile, Toyota, which is poised to pass Chrysler as the No. 3 American automaker in sales, saw sales decline 4.2-percent to 127,203 vehicles. Toyota's Lexus luxury division saw sales increase 1.5 percent.

GM FOCUSES ON THE SHORT-TERM

Like every other U.S. automaker, General Motors was facing declining sales prior to the Sept. 11 terrorist attacks in New York and Washington, D.C. In the aftermath of the attacks and with surveys showing a steep decline in consumer confidence, automakers are taking another look at how they run their companies. TCC Publisher TCC Team talked exclusively with GM President and CEO Rick Wagoner prior to the release of September’s sales figures.

TCC team: Is there a positive side?
WAGONER: There probably is a positive side. It’s certainly a way for senior management to get more in touch with the market on a day-to-day basis. It reminds us of our capabilities and tells us where we’re not as dynamic as we’d like to be.

TCC team: While the short-term future is cloudy, what about the longer-term?
WAGONER: I’m pretty uncomfortable (making that call). If you take the analysts, they’re looking for a very sharp decline in the fourth quarter on an annualized sales rate, followed by a fast up-tick next year. That’s a scenario that’s very plausible. But we’re seeing a pretty vibrant response to our “Keep America Rolling” campaign (which offers consumers zero-interest loans on many GM models). That might bode for a very different scenario. That’s why we’re focusing on the short-term, because it’s where a lot of share and money will be made.
SAGGING SALES MEANS PRODUCTION CUTS

With the September sales figures also came word that automakers will be temporarily halting production at several plants to counter the inventory build-up. Chrysler will temporarily stall five plants in October to trim 26,000 units of its minivans, the Durango SUV, the Ram Van and Jeep Grand Cherokee.

Chrysler will close the following facilities:

The week of October 1: Pillette Assembly Plant and Windsor Assembly Plant.

The week of October 8: St. Louis South Assembly Plant.

The week of October 15: Jefferson North Assembly Plant, Newark Assembly Plant, and Pillette Assembly Plant.

The week of October 22: Pillette Assembly Plant.

Ford is also considering similar production cuts.

BALLARD TO TIGHTEN TIES TO DAIMLER, FORD

Vancouver-based Ballard Power Systems, one of the leaders in fuel cell development, has taken steps to streamline operations and tighten its ties to two of the world’s largest automakers. In a move that sent its stock surging, Ballard announced it would buy back shares held by Ford Motor Co. and DaimlerChrysler in two Ballard joint ventures. XCELLSIS produces fuel-cell hardware, while Ecostar develops electric drivetrains and power conversion systems that can be used in fuel cell vehicles (FCVs) or other electric vehicles. As part of the deal, Ford and Daimler also announced plans to increase their holdings in Ballard—the DCX stake increasing from 13.5 percent to 19.5 percent, Ford’s from 18 percent to 23.6 percent. All three partners agreed that current events in the Middle East and Central Asia could increase pressures on the auto industry to bring to market vehicles using alternative forms of energy. Ford and DCX both hope to begin limited production of FCVs by 2004, though Daimler EVP Juergen Hubbert cautioned high-volume sales aren’t likely before 2010.

CAFE DEBATE ON HOLD

Congress is likely to shelve indefinitely debate on proposals to increase the Corporate Average Fuel Economy. Considering the current economic climate, it’s simply not the time to pass legislation that could weaken the auto industry—American carmakers in particular—Michigan Democratic Sen. Sander Levin cautioned TheCarConnection.com. Meanwhile, General Motors CEO Rick Wagoner told TCC he expects to see the mileage issue put on hold indefinitely. But some industry watchers caution that could change, especially in light of the current Middle East crisis. For the moment, oil prices are falling, as many OPEC nations side with the United States in its war on terrorism. But should prices surge higher, or supplies grow short as a result of overseas events, that could quickly bring the fuel economy issue back to the forefront, stressed one industry analyst.

SUPPLIER BRACES TO ANNOUNCE QUARTERLY LOSS

Donnelly Corp., the Holland, Michigan-based supplier, cut third quarter operating earnings estimate to a loss of 28 cents to 38 cents per share. Company officers will discuss third-quarter results in a conference call on Oct. 25. "All of our North American auto customers have slowed production to reduce inventories, and many have experienced production interruptions over the past several weeks," said Donnelly CEO Dwane Baumgardner.

VISTEON SHARPENS BLUETOOTH VISION

Bluetooth technology inched closer to reality with Visteon announcing a product that combines Visteon Voice Technology with Bluetooth, allowing drivers to use their mobile phones hands-free. The product is being shown in a demonstration vehicle at the Bluetooth Solutions Forum that runs through Wednesday. The technology can also be used to access information on other Bluetooth enabled electronics devises, such as PDAs and laptops. No docking stations are required. Visteon says the technology will be available before the end of 2002.

ANOTHER TELEMATICS BREAKTHROUGH

MobileAria Inc. announced that it would soon be able to provide drivers with continuous voice-activated access to their voice mail, e-mail, contact and calendar information, driving directions and traffic conditions and other important information through Bluetooth technology. "True Hands Free means drivers can use their phones and laptops with simple voice commands, enabling them to be productive while driving responsibly, eyes on the road, hands on the wheel," said Michael Orr, MobileAria CEO. "Unlike some other telematics concepts, which have yet to fully materialize, MobileAria's service is live and available this year with comprehensive productivity applications." MobileAria says this will be the first in-vehicle application of Bluetooth for personal information, and their initial service offering will be available later this year. Using the service, drivers will be able to use voice commands to read, file, forward, reply, delete or prioritize their email; dial a mobile phone; receive personalized news, sports, financial and entertainment; and check weather and traffic conditions.

FACTOID:

The restructuring of the automotive industry – as to who works with whom – will continue at a rapid pace. A recent survey, “E-readiness of the Automotive Supply Chain,” by the Center for Automotive Research (www.erim.org/car) shows that 77 percent of the first tier suppliers over the next 12 months will reduce the number of companies in their supply base by an average of 21 percent. The fallout will be a combination of capacity elimination (companies exiting the business) and rationalization (companies merging).

FROM THE SOURCE:

The Society of Plastics Engineers Automotive Division announced J.T. Battenberg III, chairman, CEO and president of Delphi Automotive Systems, as the first recipient of its Lifetime Leadership Award. The award will be presented at the SPE Automotive 31st Annual Innovation Awards Program in Detroit on Nov. 27. … For the second consecutive year, BASF’s Automotive OEM Coatings Regional Business Unit received Saturn's Outstanding Supplier Achievement Award. The automotive manufacturer recognized BASF for supplying coating systems with no defects or rejections over the course of a production year.

THE TICKER:

Autoliv (ALV), Closed 15.67, down -0.03

ArvinMeritor (ARM), Closed 15.02, up 0.42

American Axel (AXL), Closed 12.40, up 034

Ballard Power Systems (BLDP), Closed 22.94, up 4.02

Borg-Warner (BWA), Closed 41.00, up 1.12

Collins & Aikman (CKC), Closed 5.20, up 0.44

Cummins (CUM), Closed 33.49, up 1.39

Dana (DCN) Closed 15.70, up 0.44

DaimlerChrysler (DCX) Closed 32.26, up 1.36

Donnelly (DON) Closed 13.35, down 0.70

Delphi Automotive, Closed 11.45, up 0.10

Eaton (ETN), Closed 61.23, up 1.86

Ford Motor Co. (F), Closed 17.80, up 0.56

General Motors (GM), Closed 42.95, down 0.18

Gentex (GNTX), Closed 22.97, up 0.67

Goodyear (GT), Closed 18.29, up 0.44

Johnson Controls (JCI), Closed 67.45, up 1.95

Lear (LEA), Closed 26.57, up 0.05

Magna International (MGA), Closed 50.65, down 0.04

Motorola (MOT), Closed 15.23, down 0.07

Nissan (NSANY), Closed 8.71, unchanged

Toyota (TM), Closed 55.45, up 1.55

TRW (TRW), Closed 31.03, up 1.02

Visteon (VC), Closed 13.20, up 0.78

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