American automobile sales slow down due to multiple factors

Our Banking Bureau
24 March 2003

New York: Severe weather conditions, geopolitical concerns, high fuel prices, and low used-vehicle prices are among the factors that contributed to the slowing of North American auto sales in recent months, according to a Standard & Poor’s (S&P) ratings services report.

The slow sales pace has caused dealer inventory levels to spike above historical averages, and several vehicle manufacturers have indicated that they will reduce production during the second quarter of 2003, which will negatively affect the financial performance of auto suppliers.

“Especially vulnerable are suppliers with high fixed costs or heavy customer concentrations among the big three auto makers, whose sales have softened more than average and, thus, currently have a greater oversupply of inventory in the market,” says credit analyst Martin King.

“The remainder of 2003 is expected to be very challenging for most auto suppliers. Slower sales will pressure profit margins and could lead to intensified pricing pressures as vehicle makers, struggling with their own profit issues, look for price cuts and ways to reduce content on certain vehicles,” he added.

According to him the retail sales of new vehicles declined during the fourth quarter of 2002, after exceeding expectations for much of the year. Most auto retailers reported negative same-store, year-over-year sales and gross profit comparisons for their new-vehicle operations during the fourth quarter.

Despite the slower pace of new-vehicle sales, most of the rated public dealerships are expected to remain solidly profitable in the first quarter of 2003.