The N. Keller General Contracting Co. of Loxahatchee,
Fla., probably should replace its seven-year-old Ford F-350 Super
But business in Palm Beach County isn't what it used to be, and
like many contractors who work in Florida's sluggish housing
industry, co-owner Jennifer Keller isn't inclined to spend the money
Not exactly what Detroit's automakers, who have spent the past
two years shedding thousands of jobs and restructuring to avoid the
industrial graveyard, want to hear.
Just as they are about to reap savings from job cuts,
globalization and a new cost-saving labor contract, and just as many
of their new products are starting to sell, the auto companies are
staring at a slowing U.S. market.
Because of the U.S. wide housing slump and the squeeze on credit,
many auto industry analysts are predicting U.S. sales of just over
16 million vehicles this year. Many say that is likely to drop by
500,000 or more in 2008, the worst performance since 1998.
``The mode for next year seems to be get through the year,'' said
Jeff Schuster, executive director of global forecasting for J.D.
Power and Associates.
That's true for Keller, whose core business of remodeling stores
has held steady, but concrete-cutting work on once-ubiquitous
condominium projects has all but dried up.
The diesel-powered F-350, one of three pickups in the family
owned company's fleet, still looks great and runs well, Keller said.
Although they probably could afford to replace it now, they are too
wary of the future to borrow the money.
``You don't want to take on an additional payment because you
don't know where you're going to be six months from now,'' she said.
``We're still doing OK, but we're smart enough to look at everyone
else around us.''
Trucks, including pickups and sport utility vehicles, still make
up 53 per cent of the U.S. auto market, according to Autodata Corp.,
and they generate a big chunk of the Detroit Three's revenue.
But sales of pickups, many of them used as work trucks, slow down
when housing sales drop. Construction of single-family homes in the
U.S. in October skidded to the lowest level in 16 years, and pickup
sales followed, sliding 11.2 per cent in November and 5.5 per cent
for the year. That's particularly bad news for Ford Motor Co. and
Chrysler LLC, who are both introducing new versions of their
flagship pickups in 2008.
``When housing goes down, trucks tank right along with it. There
isn't any lag at all,'' said Erich Merkle, vice president of auto
industry forecasting for the consulting firm IRN Inc. in Grand
Throw in high oil prices, rising adjustable rate mortgages,
sliding home values and the subprime mortgage mess and you've got a
recipe for a down U.S. sales year for not just pickups but for all
Many analysts say car and truck buyers may stay on the sidelines
or look at used vehicles while the economy sputters.
Ed Wuerth, who owns an auto repair garage in Brownstown Township,
Mich., south of Detroit, said he's already seeing people keeping
cars longer and delaying repairs. Many complain about having to pay
college tuition costs.
``They're putting things off, but only because money is scarce.
Life goes on and they have other things to take care of,'' he said.
That will hurt Detroit just as General Motors Corp. (NYSE:GM),
Ford (NYSE:F) and Chrysler were starting to turn things around after
massive restructurings. All three companies have closed plants and
laid off tens of thousands of workers in an effort to return to
profitability. Chrysler _ which was considered such a drag on
earnings at Daimler AG that it was sold this year to the private
equity firm Cerberus Capital Management LP _ announced up to 25,000
layoffs this year alone.
The Detroit Three also are in line to save billions from new
labor contracts reached this fall with the United Auto Workers.
Those historic contracts shifted the responsibility for retiree
health care from the companies to the UAW and established lower
wages for thousands of factory workers. Ford said the new contract
nearly eliminates a $30-per-hour U.S. labor cost gap with Japanese
But it will be a while before the companies see the full benefit
from those agreements, since they had to contribute $49.6 billion
into the UAW's health care trust funds and those funds won't take
over responsibility for retiree health care until 2010.
In the meantime, they'll be feeling some pain. Already Ford, GM
and Chrysler have announced production cuts in the first quarter of
next year in anticipation of slowing demand. Thousands of jobs are
also being cut at the Big Three operations in Canada, where GM is
shutting down a truck assembly line at its operations in Oshawa,
Ont. and Ford and Chrysler are shedding even more jobs after earlier
Meanwhile, the Canadian Auto Workers union will begin talks on
new contracts next summer, hoping to resist expected automaker calls
for wage and benefit concessions to even the wage costs between
Canada and the United States.
``The Detroit Three will bear the brunt of the industry sales
decline due to brand weakness, planned production cutbacks, higher
exposure in the pickup market and the migration of consumers to
smaller, lower-priced vehicles in which the Detroit Three are less
competitive,'' Fitch Ratings analyst Mark Oline wrote in a research
Not only could 2008 be a blow to Detroit's earnings; it could
hurt its pride. Detroit's automakers slipped below 50 per cent of
the U.S. market for the first time this year, in July, and have been
fighting to stay above 50 per cent since. Toyota Motor Corp. is
expected to overtake Ford as the No. 2 automaker in U.S. sales this
year, and Toyota is also nipping at GM's heels to be the world's
At Ford, the economy is clearly on the mind of chief executive
Alan Mulally, who wouldn't rule out factory worker layoffs if
there's a downturn next year.
``With the economy, credit and housing being down, we will
continue to watch that very carefully as we move into 2008,'' he
said. ``The most important thing that we do is that we adjust our
production to the real demand, which we've done very carefully and
very decisively in this last year.''
The size and duration of a downturn depends on consumer attitudes
toward the start of 2008, said Alexander Edwards, president of the
automotive group at Strategic Vision, a California research firm
that tracks consumer decision making.
``You need to have stability, you have to have trust in what's
going on. If you don't reach that level of trust ... you don't have
the freedom to say 'OK, I'm going to buy this vehicle,''' said
Edwards, who doesn't foresee a drastic slowdown in 2008.
J.D. Power's Schuster predicts no substantial uptick until the
fourth quarter of next year.
``We haven't hit the bottom yet,'' he said. ``This economic
murkiness has extended certainly into the first half of next year.''