DETROIT Jan 12 Automakers are upbeat about
global auto sales this year despite fears of a slowdown in the
United States, which generates big profits and where sales have
surged 50 percent since the recession.
Europe is expected to begin bouncing back from its 20-year
lows and China, the world's largest auto market, will likely
continue to post double-digit gains, helped by an array of
stimulus measures and robust demand in smaller inland cities.
But slowing demand in the second-largest auto market, the United
States, has some analysts worried incentives could rise and bit
into profit margins.
"You could see some pressure on the quality of profits,"
Hans-Werner Kaas, senior partner at McKinsey's automotive
practice, said of the U.S. market. He is worried automakers will
lose the pricing discipline they have shown since the low-point
of the recession in 2009, when General Motors Co and
Chrysler Group filed for bankruptcy protection.
Worldwide, auto sales in 2014 are seen rising 3.4 percent,
according to research firm IHS, while LMC Automotive sees an
increase of 5 percent. Talk of sales and the challenges ahead
will be a topic of conversation among executives at the Detroit
auto show this week.
In the U.S. market, analysts expect sales to land somewhere
between 16 million and 16.5 million, near pre-recessionary
levels, which would mean an increase of as much as 5.8 percent.
In the decade before the recession began in 2008, the U.S.
market averaged 16.7 million new-vehicle sales annually.
While sales could rise as much as 5.8 percent in the United
States this year, that would be down from 7.6 percent growth
last year and about half the double-digit gains in the three
prior years as the market rebounded from 2009's lows.
"We're out of the restructuring phase and out of the riding
the normal recovery growth and I think sometime at the end of
2014, or somewhere in 2015 - the growth from the 10 plus million
cars in the U.S. to somewhere between 16 and 17 will be gone,"
said Xavier Mosquet, senior partner and managing director at
Boston Consulting Group.
As growth slows, there will be more pressure on all players
in the U.S. market to lower prices and raise incentives to keep
up sales, which could hit company profits.
Kaas said that if the growth plans of all manufacturers in
the U.S. market came to pass, sales would top the forecasts of
16 million to 16.5 million, so some automakers will miss their
targets. In an effort to make those marks, they will be under
increased pressure to lure buyers with overly generous
Japanese automakers, who did not put much "cash on the hood"
like their U.S. rivals before the recession, may hike incentives
in order to compete, Kaas said. Thanks to the weaker yen, the
Japanese companies have room to do that without suffering too
much, but that could force others to respond.
ELEPHANT IN THE ROOM
Last month's profit warning by No. 2 U.S. automaker Ford
Motor Co was due to those pricing pressures, Morgan
Stanley analyst Adam Jonas said. Ford warned that its pre-tax
profit for 2014 would be between $7 billion and $8 billion,
lower than the projected $8.5 billion expected in 2013.
"We think Ford's 2014 profit warning is a watershed event
for the industry in terms of increased competitive pressure,"
Jonas said in a research note. "Ford is placing a very high
portion of the blame on obscure foreign currencies, engineering
costs and launch timing, but we don' buy it. The elephant in the
room is pricing."
For 2013, Europe's beleaguered auto market is set to post a
decline close to its 2.8 percent contraction in the
January-November period, rounding off a six-year slump that has
led to plant closures by PSA Peugeot Citroen, Ford of
Europe and GM's Opel.
Most industry executives and analysts expect a return in
Europe to low single-digit growth in 2014, while cautioning that
further losses are likely as pricing remains under pressure due
to the region's glut of excess plant capacity.
"The European market remains dismal," Bernstein analyst Max
Warburton said in a recent note. "Perhaps the next move is up,
but we remain unenthusiastic. Most (manufacturers) will remain
loss-making in the region."
Southern European markets such as Spain also have potential
to bounce back more vigorously from their record lows, lifting
mass-market brands like Volkswagen -owned SEAT and
Renault's no-frills Dacia - as well as relative
newcomers like Hyundai.
In China, sales, including commercial vehicles, are forecast
by LMC to grow 11 percent, the same increase seen by Automotive
Foresight, based in Shanghai. IHS forecast a 9 percent increase.
That is welcome news as gains in emerging markets overall,
like the United States, could slow in 2014, Barclays analyst
Brian Johnson said.
"While we continue to see the emerging markets as driving
global growth in the years ahead, they don't have the same
luster as in years past," he said in a research note.