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Caution: profitability potholes ahead: production and sales of cars and light trucks are forecast to slip slightly this year. Automakers and their suppliers are more focused on trying to sustain profits in an era of high raw materials costs and rising gasoline prices.

Article Excerpt
North American car and light truck production--particularly output among the Big Three automakers--started a bit slow this year. Yet most industry observers expect the year as a whole to mirror 2004, the fourth-best year for production volumes.

Consumer preferences and car designs have begun to move away from large sport utility vehicles (SUVs), however, which eventually could slow consumption of steel, aluminum and other metals by the auto industry.

Despite a string of high-production years, the profitability of automakers and their parts suppliers remains a question in light of escalating raw materials prices and a marketplace that has come to expect generous sales incentives. Service centers can expect to feel continued pressure from automotive customers seeking cost relief in 2005.

"There was some softening in the beginning of this year," says Shawn Seanor, director of marketing and business development for steel at The Timken Co., Canton, Ohio. "Vehicle inventory levels got too high. But it was temporary. Order rates are back comparable to last year and build rates are expected to be about 16.8 million this year, similar to last year."

According to Mark Cornelius, president of Morgan & Co., West Olive, Mich., North American production was down 0.75 percent in 2004 and will likely be down 1 percent this year before rebounding between 2006 and 2009. That rebound will be bolstered by additional production capacity being added by such "New Domestic" automakers as Toyota, which has been producing cars in North America for 25 years. Toyota is in the midst of ramping up its new truck plant in San Antonio, and has announced it will probably add two more assembly plants in North America by 2010.

"Other New Domestics are expanding as well," Cornelius says. Honda America Manufacturing, Marysville, Ohio, has plans to start making the new Acura SUV in Ohio in 2006, and will build a new automatic transmission plant in Tallapoosa, Ga. Hyundai Motor Co. has built its first U.S. automotive assembly and manufacturing plant in Montgomery, Ala., where it plans to produce 300,000 Sonata sedans and Santa Fe SUVs by 2007.

Cornelius adds that Volkswagen is producing the Jetta and the New Beetle, as well as the Bora export car in Puebla, Mexico, while Subaru is boosting production of the B9 Tribeca in Lafeyette, Ind.

George Pipas, U.S. sales analysis manager for Ford Motor Co., does not expect sales or production to vary much from the last two...

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