IHS: Mid-Decade Recovery, But Not Like Before

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Unless Washington can't find it in its heart to raise the debt ceiling, and if the housing market can't recover, the economy is probably going to come back -- but it won't be like it was.

Speaking at the monthly gathering of the International Motor Press Association on Friday, George Magliano, principal auto economist, Americas for IHS' Global Insight research division, offered his take on the U.S. economic and light vehicle outlook. The words no one wants to hear, he said, are "double dip."

He said that today there is much more of a major risk factor, post-Japan's disaster and the Middle East political shakeups, than early this year. "We have lots of concerns over the economy still. We had come out of the 'great recession' and were developing momentum. We got hit with double shocks."

Given the fundamentally deplorable situation in the housing market, these events have not just slowed recovery, they have hung an anchor on it. "Job reports for May were really bad, and indicators around it have slowed noticeably."

With all that, the firm still predicts a recovery, albeit one that will have been delayed to the end of this year due to the soft patch triggered by oil prices, gasoline prices, commodity prices, Japan's crisis, the weather, troubles in Europe, weakening confidence and the mess in Washington around lowering the debt. "As we move through the year, we expect these things to resolve and recovery to get back on track."

Driving economic recovery are the facts that pump prices are now off their peak, the commodity spike is behind us, there is more progress with recovery in Japan than anticipated, the U.S. has a weak dollar that will help exports, and that the job engine will get back on track -- producing 250,000 jobs per month over the next three or four years, notes Magliano.

Light vehicle sales have taken a hit because of Japan and the Middle East, although numbers at the end of 2010 were good, "but we are getting at it in a much better way. Last year was driven by rental fleet; now it's being led by consumers. And up until the gas spike we actually had trucks selling better than cars again."

Also, consumers are leasing again as residual values have strengthened, and "the used vehicle market is hot." But because of Japan, inventory levels are very low. "That will stay with us through July."

The firm predicts that in five years the job market will open up to the 70 million or so Gen Y Americans who are out of work now. "We will eventually hit 17 million vehicles by 2015," he said. "We will have a bigger population base -- more jobs in the system."

Magliano says General Motors will end up with 18% market share, Toyota will have 14%, partly because "they will have trouble getting younger buyers back." Ford, he says, will have 16%, and the rest of the automakers will be bunched around 10%. That includes Chrysler, which Magliano says is doing better than expected.

Compact cars will, IHS predicts, constitute 57% of the market, while upper and large cars "are a really dying market." Premium cars will come back, as will crossovers, he predicts. And while pickups will return with a stronger construction market, "the aspirational weekend pickup truck driver is gone." Also gone, he says, will be small pickups, "which have no function and no future."

The takeaway is we have hit a soft patch, which has slowed recovery, but won't end it. "We will get jobs back, and auto prices and profits are there even if volume isn't. We will see more small cars, and better prices for small cars."

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