Auto Production is in a Tizzy

November 29, 2001

Sacramento - Earlier this year automotive production in the U.S. slowed down rapidly with automakers having to make near instantaneous adjustments to employment and production schedules to avoid serious financial problems. In Europe and Asia, however, sales of new cars remained stable with occasional bright spots in some countries where sales were actually increasing over last year.

Then came September 11. That dreadful day seemed to change everything. Except in the U.S., where it forced automakers to consider lowering the profit point on their vehicles in order to keep plants operating and instead of shutting down assets and laying off more people. Obviously they chose the former with zero percent financing incentives that got buyers back in the showrooms and moved inventory.

We are now beginning to see signs that European automakers may be facing some of the same critical decisions as they prepare to enter the new year. There is speculation that Germany may already be in recession and auto sales have slowed in France and Italy, as well as in central and eastern Europe.

For instance, VW's Skoda in the Czech Republic has already announced that it would make some inventory corrections over the next month by cutting three afternoon shifts in December and remaining closed for three days in late December. Skoda had told its union that additional inventory corrections might be needed early next year.

Yesterday DaimlerChrysler announced that it would cut production at its truck plant in Karlsruhe beginning in January. Plant workers there will go to a four-day work week for the entire month. Volkswagen will do the same at Emden, Germany where it makes the Passat. Auto sales are also being reported down in Poland - down 27% last month.

Most economists acknowledged this week that the U.S. economy has been in recession since last spring but we only began to notice it after Sept. 11 when things got worse. Since then consumer confidence continues to erode, although auto sales in October were up significantly. While the excitement may be wearing off on zero percent financing, November sales are expected to up over last year as well. Some economists are now beginning to forecast that the economy has bottomed out and may begin improving after the new year. In the meantime, automakers and Tier one suppliers deserve some credit on the way they have managed this downturn. While many suppliers have been seriously hurt financially, there has been little panic or chaos in the industry as everyone adapted to reduced orders, employee layoffs and even plant shutdowns.