Automaker Economists Issue Outlook for 2007

by Fara Warner, Jan 25, 2007, 5:00 AM

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Three leading auto economists predict that a slowdown in U.S. economic growth will have a ripple effect on auto sales this year, forecasting U.S. sales of light vehicles will remain steady or drop slightly -- to around 16.4 million units. But they expect gasoline prices will continue to decline, which could help segments such as sport-utility vehicles.

Economists from General Motors Corp., Ford Motor Co. and DaimlerChrysler AG laid out their predictions earlier this month at the Society of Automotive Analysts meeting in Detroit.

Van E. Jolissaint, Chrysler's chief economist and director of economic and market intelligence with DaimlerChrysler AG, said he expects U.S. gross domestic product will slow from around 3.5% to 2.5%. He predicts that by the middle of this year "housing construction will cease to be a drag on the U.S. economy."

Jolissaint also predicts that as gas prices stabilize, sales of trucks and SUVs will rebound. "We expect small and mid-size and even large cars to lose share somewhat in 2007, and we expect pick-ups and sport utilities and minivans to regain some share in 2007," he said.

Both GM's chief economist G. Mustafa Mohatarem and Ford's Ellen Hughes-Cromwick, director and chief economist, agreed that oil prices should stabilize. But they were less bullish about the U.S. auto industry's prospects for growth in 2007. Instead, they predict that virtually all the growth that will happen in the global car industry will come from outside the U.S. in the foreseeable future -- particularly from China and India.

The growth in those markets is likely to have an impact on the kinds of cars U.S. auto buyers choose, said other analysts speaking at the meeting. The small car market --think brands like Toyota's Yaris or the Nissan Versa -- is a tiny portion of the U.S. market.

Analysts such as Wim Van Acker, managing partner with the North American operations of Roland Berger Strategy Consultants, expects that to change in the next six years as more production from China becomes available in the U.S.

"The entry-level car is something which is beginning in the U.S.," he said, projecting sales will almost double, from 400,000 in 2006 to about 700,000 in 2012.

Van Acker said that while price and fuel economy are key deciding factors for small-car consumers, brands are also important to the decision-making process. "People always think that the product is the only thing. Well it's not. You have to handle the combination of car, care and core: The car being the product, care being the service around it, and core being the brand, which is supporting it."

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