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U.S. Auto Makers Expect Record Profits This Year : Sales: Increased production schedules and reduced rebate expenses should combine to significantly boost Big Three earnings.

March 03, 1994|From Reuters

DETROIT — With auto sales moving into high gear, Detroit's Big Three car makers are planning sharp increases in second-quarter production rates, setting the stage for record profits this year.

According to estimates by industry watcher Ward's Automotive Reports, General Motors Corp., Ford Motor Co. and Chrysler Corp. plan to build 2.69 million cars and trucks in the United States next quarter, up almost 11% from the 2.43 million vehicles built a year ago.

Industry analysts say the robust production schedules, coupled with a steady decline in rebate expenses, should translate into record profits for the quarter and the year for the once-beleaguered auto industry.

"1994 will set an all-time earnings record for the Big Three," said Dean Witter Reynolds Inc. analyst Ronald Glantz.

Last year, GM, Ford and Chrysler posted combined profits of more than $7 billion. But S.G. Warburg & Co. auto analyst David Healy expects that to almost double this year to $13 billion, with the biggest profits coming in the second quarter.

"The second quarter could be the best of the year," Healy said. "Usually by a small margin, the second quarter is the best production period of the year and therefore probably the best earnings period of the year."

Last year, Detroit's Big Three earned more than $2.3 billion in the second quarter, a mark analysts say should easily be surpassed this year as the industry continues to reduce the amount of money it spends on rebates.

"The industry is so strapped for inventory that it's substantially reducing incentives for fleets as well as the consumer," Glantz said.

Indeed, in the fourth quarter of last year, GM, Ford and Chrysler reduced the average retail rebate by $245 to just under $800 per vehicle.

Analysts expect the onslaught of new vehicles, like the Dodge Neon, Ford Contour and Chevrolet Lumina later this year, to allow auto makers to trim those costs even further in 1994.

Another factor helping Detroit is the increasing age of the motor fleet and the growing popularity of trucks.

According to Glantz, one out of every four cars on the road today is more than 12 years old and will need to be replaced soon.

In order to keep up with demand, U.S. auto makers are increasing output, particularly of trucks.

According to Ward's, Detroit's Big Three are planning to build 1,342,000 trucks, minivans and sport utility vehicles in the second quarter, up 15.4% from last year.

Passenger car output by GM, Ford and Chrysler is expected to rise a more modest 6.3% to 1,344,000 units.

The push toward trucks has surprised even some auto executives, forcing companies to try to find ways to squeeze out additional vehicles without building new assembly plants.

Last week, for example, GM said it will add a third work crew at its Flint, Mich., van plant in May and delay the closing of its Pontiac West factory in Michigan for two months to keep up with demand.

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