Loss dominates auto industry's second quarter
By Michelle Collins | August 1, 2003
"Incentive costs at the Big Three have surged by 14% over the past year to roughly US$3,800 per vehicle," says Carlos Gomes, Scotiabank's auto industry specialist. "Inducements are now more than double the level of three years ago and show no sign of abating."
The Big Three's US market share fell to a record low of 62.1 per cent for the first half of 2003, compared to 63.4 per cent a year ago, and more than 70 per cent in 1999. An increase in imported vehicle purchase and a one-time revaluation of dealer stocks and second-hand residual values for one of the major American companies had an impact on these figures.
In addition to lower sales the auto supply industry continues to search for ways to reduce costs.
"A sample of U.S. parts makers reported a 4% year-over-year increase in first-half revenues, but gross profit margins slumped to only 8.3% - the lowest level since the 1990-91 recession and 33% below the average of 1995-99," comments Gomes.
The recent slump is expected to abate by the end of the year as the overall economy improves with the help of American tax cuts. These cuts will boost household income to a total of US$40 billion for the second half of 2003.
"Despite sluggish employment conditions - a key driver for vehicle sales - household wealth has started to improve, climbing by 5% over the past year alongside higher home prices and this year's double-digit gain in equity markets," adds Gomes. "Moderately stronger economic growth should lift U.S. vehicle purchases to an average of 16.4 million units in the second half of 2003, from 16 million during the first six months of the year. Volumes will likely strengthen to 16.8 million in 2004, matching last year's sales pace."
The report is available online at http://www.scotiacapital.com/English/bns_econ/bns_auto.pdf.
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