"The Pause Is Over" Much Stronger Auto Market In Near Future

DETROIT July 31, 2003; Sholnn Freeman writing for the WSJ reported that a much-stronger U.S. auto market is emerging amid signs of an accelerating economic recovery, said economists who track the industry.

David Littmann, chief economist at Detroit Bank Comerica Inc., said the auto picture is brightening dramatically due to tax cuts, low financing rates and improvements in the job market.

"The pause is a matter of history now," he added, "and we're getting into a much more robust auto economy in the next 12 months."

Bob Schnorbus, chief economist at J.D. Power and Associates, said improving economic factors have converged on the auto market, helping to bump the industry out of a sluggish selling period. "We're clearly going to be doing better than we have been," he noted. "In fact, this will be the best month of the year."

Mr. Schnorbus expects July's sales pace to be between 17 million and 17.5 million vehicles on a seasonally adjusted, annualized basis. The first quarter's selling rate was 15.9 million and improved to 16.3 million in the second quarter, he added. Auto makers release U.S. July results Friday.

The economists said American consumers will have more money to spend, thanks to tax cuts which start coming through in paychecks this summer.

Mr. Littmann said Americans will get $13 billion in child tax credits in the mail from the government this summer, while shareholders will get $10 billion because of the dividend-tax reduction. He added another $35 billion in lower income taxes and depreciation benefits will also flow into the economy.

"Even in the midst of what we know is going to be an accelerating economy, fiscal and monetary policy will remain extraordinarily stimulative for the rest of the year," said Mr. Littmann.

He went on to say job-market improvement also augers stronger auto sales. Mr. Littmann pointed to the Labor Department's household survey, which has been showing gains for the past six months. He said new claims for jobless benefits, also a leading indicator, are on a downward trend.

Messrs. Littmann and Schnorbus both agreed a drop-off in company-backed incentives is unlikely, with Mr. Schnorbus saying, "There's still a market share battle going on."