When a market has risen for seven months on
the trot, and 9 months out of the last ten, it could be deemed to be churlish to consider
that all is not quite what it seems. Yet the nagging suspicion remains that growth in the
second half of the year will be much harder to achieve than it has been over the opening
six months. Sales to June were 5.4% ahead of last year at 4,431,292 from 4,205,515, and
although growth in June itself was a less impressive 1.8% at 836,629 from 822,186, that
was still the best result for the month since 1995. So why the pessimism?

The annualised selling rate for passenger
cars is currently 8.4 million, but the market seems to be on course for 8.6 million for
the full year. The light truck sector seems to be on course for around 7.8 million and the
truck sector is running at an annualised selling rate of 470,000, so the total US vehicle
market for 1999 seems likely to finish somewhere between 16.6 and 16.7 million, which is
something to celebrate. There isn’t too much doubt about the commercial vehicle
sectors, unless it is that light trucks might even threaten the 8 million barrier, but
somehow the current strength of the car sector feels false.

The reason for the doubt about the strength
of the market lies in the performance of General Motors. The world’s number one
vehicle manufacturer has been hurt by its recent performances in its domestic market and
announced a determination to hold on to market share whatever. Certainly the impression is
that if penetration in the US car market was to fall below 30%, that would be considered
an absolute disaster and a few heads might even roll. It is known that GM would like to
see market share at around 32%, but in the first half of the year the share has actually
dipped to 30.8% from 31.6%. So GM will defend that standing with everything that it takes,
and that means by buying sales through ever more juicy discounts. That will prompt some
other main contenders to defend their share position and the consumer will win again. But
only for so long.


The clues are mainly evident in the
performances of the Japanese. Honda, Suzuki and Toyota are already trading at levels below
last year, and in June Mazda, Mitsubishi and Nissan also slipped into decline. For the
hard pressed Japanese, profitability is more important than numbers sold at the moment and
they seem more prepared to accept natural levels of demand rather than force the market.
It is our view that if the market was left to find its own level at the moment, the best
that we would expect would be sales that would be flat against last year’s
performances. Having stuck with the view that 1999 will finish at 8.6 million for all of
this year to date, we are now beginning to believe that 8.5 million could be nearer the

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General Motors as a group has sold 2.5%
more than last year at 1,363,319 from 1,330,565, but that is less than half the marker
average growth. The Ford Group has also failed to match the pace, sales rising 1.7% to
989,306 from 972,621, and Chrysler is also lagging the pace with sales up 3.7% at 405,154
from 390,759. But in June both GM and Ford bettered the average for the month, but were
clearly offering generous discounts.

Some gains are undoubtedly genuine. Hyundai
has taken advantage of currency fluctuations to boost its standing to 1.6% of the market
from 1.1%, with sales rising 56.1% to 70,940 from 45,431 and new subsidiary Kia chipped in
with a 43.8% gain to 40,120 from 27,898. Volkswagen and Audi can do no wrong and the group
has leapt to 4.0% of the market from a much lower 2.9% at the same time last year. The new
Beetle has certainly helped, but the real gain has come from the new Passat that is
gaining friends on a rapid basis, to the extent that it almost made it into the top twenty
for the half year. Daewoo has also arrived on the scene, selling 11,004 cars to date, but
it will be some time before the sustainable level for Daewoo sales can be determined.