Ward's AutoForecasts Sees North American Output Rebounding After Q4 Slide

North American production will not reach solid historic levels until late 2007 after bottoming out in fourth-quarter 2006

DETROIT, Sept. 27 -- According to Ward's AutoForecasts, North American production will start an upward trend in first-quarter 2007 after hitting a trough in fourth-quarter 2006, but it will not reach the historically high levels averaged for most of this decade until the latter part of next year.

Ward's forecasts quarterly seasonally adjusted annual rates (SAARs) will not return to the 16.5 million averaged from 2002 through first-half 2006 until third-quarter 2007. (The SAARs are calculated using the Federal Reserve's factors for the U.S. market for all of North America.)

Third-quarter 2007 also will be the first quarter since this April-June to see an improvement over year-ago, when it is forecast to reach a 16.5 million SAAR, compared with Ward's third-quarter 2006 estimate of 15.5 million.

Production is forecast to hit bottom in fourth-quarter 2006, with a 15.1 million SAAR, followed by 2007's first-quarter 15.3 million rate and second- quarter's 15.6 million.

Capacity utilization for the industry -- based on what auto makers can build over a 52-week work year -- will drop to 69.4% in fourth-quarter 2006, from 80.7% in like-2005 and 77.1% in fourth-quarter 2004.

The utilization rate as well as actual production in the U.S., Canada and Mexico, each, is forecast to decline in the fourth quarter from year-ago.

North America's third-quarter capacity utilization is estimated at 69.2%, compared with 74.8% last year and 73.9% in July-September 2004.

The cause of the trough is sluggish economic growth, which is weakening demand for new vehicles, compounded by higher energy prices eating into consumer spending.

Worse still, all this comes at a time when North America's top three producers -- General Motors Corp., Ford Motor Co. and DaimlerChrysler AG -- are implementing strategies to wean themselves from customer rebates in order to improve profit margins on vehicle sales and gain more pricing power.

The result is a further dampening in overall demand for their products, resulting in a major inventory adjustment in the third and fourth quarters.

U.S. automakers must see a minimum of one strong month in the fourth quarter to achieve a 17.5 million total vehicle sales SAAR -- or better -- to stave off further inventory adjustments in early 2007.

Ward's AutoForecasts details forecast North American production by manufacturer, plant, platform and vehicle line. A product of Ward's Automotive Group, Ward's AutoForecasts draws from Ward's extensive automotive database and from the many experts employed at Ward's for our news, data and analysis services.