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Bright spot fading: as automotive sales and production scale down this year, metals suppliers look to align with expanding foreign carmakers and popular American-made models. (Automotive Outlook)(Cover Story).

Article Excerpt
North American automotive production, though still relatively strong, is expected to weaken in 2003 from last year's robust levels. While this is no surprise given the weak U.S. economy, rising fuel prices and uncertainty over the war with Iraq, it definitely isn't good news for metals producers and service centers, who've relied on the auto sector as one of their few growth areas in the past few years.

How steeply the market may decline is anyone's best guess, as this year holds a host of question marks, the largest being how long the Iraqi war will last. If it is quickly resolved, according to the consensus view, auto sales could recover mid-year and overall sales and production may near last year's levels. If the fighting and post-war unrest is protracted, however, vehicle consumption could weaken further.

On the bright side, J.D. Power and Associates reports that between the beginning of the war March 19 and March 25, retail sales of U.S. vehicles dropped only 8 percent compared with the year-earlier period. This, the research firm said, is nowhere near the levels following the Sept. 11 terrorist attacks when sales plunged 25 percent. Car sales also plummeted during the Gulf War in 1991, which makes the current downturn mild by comparison, says David Healy, auto industry analyst for Burnham Securities, New York.

Even before the war, North American sales of passenger cars and light trucks started off more slowly than last year, notes George Pipas, U.S. sales analysis manager for Ford Motor Co. Sales for the first two months of 2003 were down about 4 percent compared with the same period in 2002.

"Consumer sentiment is at a 10-year low. There are concerns about the economy and its ability to provide jobs. There are rising energy prices both for heating homes and fueling autos. There are concerns about what is going on in the other side of the world," Pipas explains.

Eron Shosteck, director of communications for the Washington-based Alliance of Automobile Manufacturers, says some observers believe that, with the attractive incentives offered by the automakers from autumn 2001 to now, many consumers might have bought forward, borrowing on future sales.

While some of the current sales decline is related to previous incentives, Fred Standish, senior manager of public relations at Nissan NA Inc., says the largest influence probably has been the soft U.S. economy, along with the economic and political uncertainty.

"It is not realistic to...

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