US: Pent-up demand could drive 16m+ market by 2012 - AT Kearney
Management consultancy firm AT Kearney has presented scenarios for auto sales in the US in which it says the 'most likely' scenario sees a return to 16m+ units by 2012.
Based on some 35 years of light-vehicle sales data, AT Kearney's study finds that while auto sales rates fall precipitously during recessionary periods, there exists a specific level of 'pent-up demand' which helps sales spring back faster once a recovery begins.
Based on the firm's current forecast, AT Kearney says it expects 8.4m units of pent-up demand to materialise through 2015.
To derive its assumptions for future growth, the analysis smoothed fluctuating demand for vehicles over the 35-year period and applied three different economic scenarios to the baseline growth. In developing these scenarios, AT Kearney analysed variables including GDP growth, consumer confidence, credit availability, affordability, licensed drivers, vehicle age and vehicle scrap rates reaching back to 1973.
AT Kearney estimates that 13m units of pent-up demand have been accumulated between 2007 and 2009 (based on a 10m light vehicle market in 2009) and that this pent-up demand will flow through to future sales, as has happened in the past.
Some 65% of the pent-up demand (8.4m units) is expected to materialise through 2015 based on a pent-up demand recovery, taking the light vehicle market to 16.1m units in 2012, under AT Kearney's baseline forecast.
The study also offers a strategic view of the US auto industry, and suggests that there are currently too many generalist, or broad market OEMs, carrying too many nameplates to be sustainable.
The number of nameplates offered for sale in the US would need to shrink by one-third - from the current 336 to 214 - to maintain a sustainable margin in 2009, the study found. Even with a rebound in volumes by 2014, AT Kearney concludes full-line OEMs would still need 32 fewer nameplates than they are currently planning for in order to earn a sustainable margin.
Extrapolating the analysis to Tier 1 auto suppliers, the firm concluded that suppliers will require additional cash infusions ranging from US$17bn to US$33.5bn over the next two to four years, depending on the speed and extent of the recovery, to avoid bankruptcy.
However, the suppliers are expected to return to profitability by 2011, in the most likely scenario, although the study concludes they will lose US$23.7bn in 2009.
"A disorderly wind-down of key suppliers could also potentially shut down other OEMs," said Dan Cheng, A.T. Kearney partner and leader of the study. "But recovery will ultimately come down to how quickly the economy improves, and I'm sure the government will be doing everything it can to help the industry avoid the worst case scenario outlined in our report."