York "bearish" on U.S. auto sales outlook

By Poornima Gupta

DETROIT (Reuters) - Jerry York, adviser to billionaire investor Kirk Kerkorian, said on Wednesday U.S. auto sales were not likely to recover in the second half of this year and would only see a limited rebound in 2009.

"My expectation is that the second half of this year isn't going to be much better, if at all, than the first half," York told Reuters in an interview. "We could see a small amount of recovery next year, but with all of the problems in the system .... I am very bearish on the outlook for the next year or so."

U.S. auto sales are on track to fall to nearly 15 million units this year from 16.15 million a year earlier, in a downturn linked to record high gas prices, a slump in housing and tighter credit.

York, a veteran auto industry executive who is advising Kerkorian on his investment of about $1 billion in Ford Motor Co (F.N), said the recovery in sales could start in "some degree" in 2009.

Kerkorian has taken a 6.5 percent stake in Ford and has said he was willing to support the automaker's turnaround with an infusion of additional capital.

York declined to comment on Ford, saying only that all three U.S. automakers were responding to record gas prices with steps to increase production of more popular smaller cars.

Earlier, York served as Kerkorian's representative on General Motors Corp (GM.N) board and advised him in a failed bid for Chrysler LLC last year.

York said Chrysler, the No. 3 U.S.-based automaker now controlled by private equity firm Cerberus Capital Management, would likely partner with a foreign company or be sold after its turnaround shows results.

"Once it is fixed up a bit, ... that would make Chrysler more attractive to a foreign buyer," said York, a former Chrysler chief financial officer.

"Do I expect it to happen with six months? No, I don't think so. Certainly within two or three years," he added.

In wide-ranging remarks, York said automakers need to add features and improve the interior of small cars to make them more profitable as consumers shun expensive and higher-margin pickup trucks and SUVs.

"Traditionally we have considered small cars in this country to be a low price point vehicle," York said. "I think what you are going to see is the bringing in to the marketplace of some very well-appointed small cars that have the amenities that the marketplace wants."

The U.S. auto industry has historically charged a premium for larger vehicles. By contrast, the profit margin on small cars for automakers have typically been thin.

York also said the downturn in the U.S. auto market combined with higher prices of commodities, particularly steel, could lead to further consolidation in the auto parts sector and even force many more suppliers to file for bankruptcy protection.

"I think you will see some of both of that," he said, referring to bankruptcy and consolidation among parts suppliers.