Detroit automakers were caught flat-footed last year as new car sales stalled, leaving dealer lots overcrowded and manufacturing plants idle. Now it appears Washington policymakers are at risk of falling victim to overly optimistic sales forecasts.
The White House finalized new auto fuel economy standards late last month that assume annual new car sales will rebound to levels unseen in the past two years, and will do so in as little as 18 months.
Likewise, congressional lawmakers pushing for more flex-fuel vehicles – cars and trucks capable of running on high blends of ethanol and gasoline – may watch the effects of the proposed legislation fall flat as a result of the significant drop in the sale of new vehicles that is dragging down the cash-strapped industry.
New cars and trucks rolled off dealers' lots last month at a seasonally adjusted annual rate, or SAAR, of 9.86 million units, according to the sales-tracking firm Autodata. That number represented a slight uptick from the previous two months but was still nearly 500,000 units below last December's lackluster SAAR and 3.4 million less than last year's U.S. sales total.
Last week, as President Obama announced the latest government steps aimed at shepherding General Motors Corp. and Chrysler LLC back toward profitability, he pointed to the historic downturn in sales as one of several factors dragging down the industry. "We must also recognize that the difficulties facing this industry are due in no small part to the weaknesses in our economy as a whole," the president said as he signaled his support for new federal efforts to boost auto sales.
Only three days earlier, the Transportation Department finalized new corporate average fuel economy, or CAFE, standards that are based on government estimates that the total number of passenger cars and light trucks likely to be sold during model year 2011 through 2015 would be roughly 83 million, or more than 16.5 million cars and trucks annually.
Those numbers exceed many industry predictions. Analysts at IHS Global Insight and J.D. Power & Associates do not expect U.S. annual sales to reach 16.5 million until 2013, and a third firm, Detroit-based CSM Worldwide, does not expect the sales total to reach DOT's estimates at any point during the five-year window.
"In that time frame, our expectations peak at a level just surpassing the 16 million threshold," said Joe Barker, a senior sales forecaster at CSM Worldwide. "There are going to be a lot of headwinds facing the industry."
He said that the auto industry will not rebound until after the housing and credit markets do. "Until then, we will likely not see sustainable growth in the auto industry," Barker said.
But with model year 2011 autos expected to arrive in dealer showrooms in late 2010, DOT is giving the new car market about a year and a half to rebound from its current rate of less than 10 million units per year to more than 16 million. If the model year 2011 rebounds to only the 2008 level of 13.2 million, the following three years would need to average 17.4 million units each year.