Auto Industry Faces Slow Recovery, Economist Says

The recovery, predicts Standard & Poor's chief economist, will be slow. "Basic forecast: recession, good news, mild recession, bad news, long recession with sluggish recovery," said David Wyss at the company's Auto Industry Hot Topics Conference in New York on Thursday. And he was being optimistic.

Robert Schnorbus, chief economist at J.D. Power and Associates, and Tom Libby, chief of automotive research, applied the dour news to the auto business.

Schnorbus said auto sales adhere more or less to GDP. Bottom line: this will be the worst year since the early 1990s, with sales around 14.2 million units. The industry high-water mark was 2000, when over 17 million new cars and trucks were sold in the U.S.

Libby said the auto industry--at least from the standpoint of production--will start to pull up in 2010. He says, in fact, that by 2012 Toyota will be producing more vehicles in North America than Chrysler. "Honda won't be that far behind; but there will also be a recovery by GM and Ford."



But as large vehicles continue to come under severe pressure next year at least--as the Detroit automakers struggle to shift to smaller, better-selling vehicles--2009 will also be a low-14 million-unit year.

By segment, subcompact cars saw an explosion of sales--up 130% this year. Libby said the segment, which includes cars like Toyota Yaris and Honda Fit, will see a continued 30% increase through '09.

As of August, only three of 27 automotive segments had sales increases: subcompact, compact, and mid-sized vehicles. But while subcompacts in particular are hot--outperforming the rest of the industry by 46%, per Libby--they remain a small segment of the U.S. auto market.

"The market is still dominated by mid-sized conventional vehicles, compact conventional, compact crossovers and large pickups. If you aren't in those segments, you aren't playing."

Libby also talked about some specific challenges for a handful of new vehicles: BMW's 1 Series car may hurt sales of BMW's critical 3 Series vehicle because it is priced only $2,400 lower. The Pontiac G8 has had positive reviews, but low sales volume. Why? "The challenge is that it's a Pontiac," says Libby.

The new Dodge Challenger? Very expensive at $47,654, and far above the competition. "Since then, they have introduced a six-cylinder version at a lower price, but the model is still way over anything else in the segment."

Same problem for VW's Tiguan compact crossover, which Libby said reflects a problem at VW--the propensity to price vehicles way above the competitive set.

As for the new Ford Flex crossover. Libby said sales are so far significantly below where Ford had planned. "My understanding was they wanted to sell 100,000 annually." He says the first two months have been around 2,000 and 4,000 units, which are not unusual numbers out of the gate. The vehicle fills a gap left when Ford killed the Freestar minivan. But it's Ford's third crossover after Edge and the discontinued Taurus X in a crowded market. And also, in a market tending to small vehicles, "it doesn't look small."

Next story loading loading..