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Show AUTOS REGAINING THEIR LUSTER For four years in a row, through 1982, auto sales have been depressed. New car sales in 1982 were the smallest since 1961, while auto production slumped to a low not touched since 1958. The disappointing demand exacted its toll on automakers' fortunes, with reported operating losses commonplace. However, despite all this gloom, the sales pace did ratchet upward from November through year's end and periods of increased strength, albeit modest, have occurred during the first quarter of 1983. This upbeat action did not substantially alter final annual results in 1982, but it was indicative of underlying pent-up demand. TAX NO DERAILER At the end of 1982, following a lengthy filibuster, congressional approval for a nickel-a-gallon increase in the federal tax on gasoline and diesel fuel was secured. While there has been little hue and cry from motorists concerning the boost, some of the nation's truckers did go out on strike, but this action was shortlived. short-lived. The tax went into effect on April 1, 1983 and, no doubt, some of the oil companies com-panies may seize the opportunity to up the ante. But we do not feel this will short-circuit expected improving results in auto sales patterns. CARROT AND STICK The sales outlook is brightened by several positive factors despite the fact that the average selling price of a domestic car in today's marketplace is frightfully close to $10,000. As part of the great change in products in current automobile offerings though, newer autos have made worthwhile gains in fuel efficiency. Also, the automakers have offered either reduced interest rates or rebates as enticements to consumers. Lastly, the current state of inventory is quite manageable, i.e., very close to the sought-after 60-day norm in terms of selling sell-ing supply. A solid pickup in the sales pace will translate into improved vehicle vehi-cle production schedules. During the first quarter, while sales incentives in-centives were in place, the tempo of auto activity did post year-to-year advances. Admittedly, the comparisons were against weak year-earlier periods, but, most important, gains were reported a pattern we expect will continue. OUTLOOK ENHANCERS During its long period of trial the auto industry has cut its break-even point. In truth, marginal operations or auto lines which have been disposed of augur well for upcoming profit reports. Looking ahead, as demand picks up automakers should benefit from economies of scale. Also, Americans have retained their cars for longer intervals. The average unit on the road is close to 74 years old, which means that it is nearing the end of its useful life, hence is much closer to replacement. INVESTMENT PERSPECTIVE In a recent study the Research Department Depart-ment of Babson's Reports Inc. reviewed the prospects for the domestic automakers. Babson's anticipates at least a 10-12 percent year-to-year advance ad-vance in industry sales in calendar 1983. Moreover, a marked improvement in reported profit levels for the manufacturers manufac-turers appears reasonable. With regard to the respective common stocks, their price performance has exceeded ex-ceeded the more comprehensive market averages in recent times. In fact, they are currently trading in the top end of their respective ranges for the past twelve months. Presently Babson's is advising its clients to retain General Motors common in portfolios for its longer-term appreciation apprecia-tion potential. However, due to the lack of substantial progress, we would use the recent market rally to switch out of Ford and Chrysler holdings. |