Three top US motor industry investors painted a grim picture for the sector in 2008 at the Reuters Autos Summit in Detroit on Sunday, with one executive predicting a possible slump in US sales to levels not seen in 15 years.
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The weakest forecast is for a possible 9.4% decline. But all three – Jerry York, an adviser to billionaire investor Kirk Kerkorian; financier Wilbur Ross; and Thomas Stallkamp, a former Chrysler president – told Reuters they were more pessimistic than many in the battered industry.
“While I am very negative on the autos sector over the next 12 to 18 months, I’m just not sure how bad it could be,” York, a former board member of General Motors and chief financial officer of Chrysler, said. “We all know housing is a debacle.”
US light vehicle sales could slip to 15.5m or less next year, York told Reuters. That would be down from near 16m this year, a drop of 3% to mark the second consecutive annual decline and the lowest tally since 1998.
Stallkamp, a partner at private equity firm Ripplewood Holdings, which owns several vehicle parts makers, said the market could slump to 14.5m, the lowest level since 1993.
“I’d say it’s somewhere between 14.5 (million) and 15 (million), somewhere in there and it’s hard to tell,” he told Reuters. “Today, I’m a little more towards 14.5 (million).”
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By GlobalDataSuch a decline would be felt throughout the sector, CSM Worldwide auto analyst Michael Robinet said at the summit. “That would certainly be one of the worst years on record given the gravity of the industry,” he told Reuters.
US light vehicle sales fell almost 11% in 1991, when the economy was in recession.
Ross, an investor who specialises in restructuring troubled businesses and has assembled an automotive parts empire through acquisitions, told Reuters the US consumer was “pretty well tapped out” as he predicted light vehicle sales would slip a few hundred thousand units from this year.
Most automakers have predicted US sales next year in the range of just under 16m to 15.5m, with Nissan Motor at the low end.
However, the crumbling US housing market is spooking consumers, the investors told Reuters.
“I hope I’m wrong on 14.5 (million) to 15 (million),” Stallkamp said. “But I think the mortgage issue is going to freak people out and that will hit pretty hard in ’08.”
Ross called it “a sort of poverty effect from house prices going down.”
The US automakers’ market shares will suffer more than foreign rivals in such a weak market, Stallkamp said.
“You’re going to see some continued retrenchment in construction and the building trades that will hit the Big Three particularly,” he told the Reuters Summit.
[That view has been expressed earlier by other US industry observers because the construction business is a big buyer of the Big Three’s large pickup trucks – like Ford’s top-selling model overall, the F-series, GM’s rival Chevrolet Silverado and its GMC clone plus the Dodge Ram. This sector is still largely ‘Detroit’s own’, despite relatively low-volume Japanese brand competition, and the trucks mostly their most profitable models. Ed.]
The investors see the Big Three US automakers cutting factory production instead of returning to overly generous discount deals such as GM’s zero-percent financing offers, first rolled out after the 11 September 2001 attacks.
None of the three predicted a recession for the US economy in 2008, but York told Reuters “it feels like it’s on the way.”
Stallkamp, on the other hand, sees global credit markets stabilising in the first half of 2008, with the Thanksgiving, Christmas and New Year ‘holiday’ shopping season a key indicator. He sees US auto sales coming back in 2009.
The US automakers, already slashing jobs and factory production, will “have to get smaller faster” and push for more sales overseas in a weaker market, Stallkamp told Reuters.
