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Weak U.S. auto sector set to play it again in '09
September 17, 2008 / 4:04 PM / 9 years ago

Weak U.S. auto sector set to play it again in '09

<p>Hyundai Motor Corp Vice President of Sales David Zuchowski attends the Reuters Autos Summit in Detroit, Michigan September 16, 2008. REUTERS/Rebecca Cook</p>

By Ben Klayman - Analysis

DETROIT (Reuters) - The U.S. automotive sector is set to hit the rewind button in 2009, repeating this year’s expected historic lows, as consumers struggle with tighter credit, high gasoline prices and the weak housing market.

Making matters worse is that optimism on the timing of a recovery is fading, with some industry executives at the Reuters Autos Summit in Detroit forecasting strong demand in the sector not returning until 2012.

“It’s not an overnight recovery. It’s a bit of a perfect storm,” said Hyundai Motor Co’s (005380.KS) U.S. sales chief David Zuchowski, citing struggling financial markets, weak consumer confidence and rising unemployment.

“We came to take a 16-million unit industry as a given. We need to buckle down,” he added on Tuesday.

Through August, overall 2008 U.S. light vehicle sales have slipped 11 percent from last year. Zuchowski expects a weak fourth quarter and said the first 10 days of September showed a shockingly low annual sales rate of only 10 million units.

Most in the industry expect sales for the year to finish around 14 million, which would mark a 15-year low. Zuchowski expects flat sales in 2009, with a return to more than 16 million units unlikely until 2012.

This year’s numbers are down sharply from 16.2 million in 2007. A year ago, many thought 2008 sales would finish between 15.5 million and 16 million, but AutoNation Inc (AN.N) Chief Executive Mike Jackson said consumers are “spooked”.

“They’re already struggling with the value of their home. They’re struggling with credit availability. In May of this year, they hit the trifecta and also had $4-a-gallon gasoline. It was a break point,” he said on Monday. “The American economy is clearly in a domestic recession.”

Signs of a rough ride ahead abound. Stocks saw their worst day on Monday since the aftermath of the September 11, 2001, attacks on news of Lehman Brothers Holdings Inc’s LEH.P bankruptcy, the sudden takeover of Merrill Lynch & Co IncMER.N and questions about insurer American International Group Inc’s (AIG.N) survival.

“We’re in the 6th or 7th inning, but we’re going to have extra innings,” said Jackson, who heads the largest U.S. car dealership. “This is taking much longer and is much more protracted than anyone anticipated.”


A recovery in the auto sector will not occur until housing prices stabilize and consumers can more easily get loans to buy or lease vehicles, executives at the summit said.

“You tell me when the credit crisis passes and I’ll tell you when auto retail volume is going to recover,” Jackson said. He added that dealers are seeing heavy showroom traffic from customers who cannot get approved for financing, delaying those sales for a later time.

Grander dreams of 17 million in annual sales, which the industry last hit in 2005, also are seven years or more away, Jim Lentz, the president of Toyota Motor Corp’s (7203.T) U.S. sales unit, said on Tuesday.

“We all had hoped that this would be a very quick downturn and a very quick recovery,” he said. “It’s quite apparent that that’s probably not going to take place.”

Toyota, the world’s largest automaker by sales, expects U.S. industry sales to be relatively flat in 2009, with the possibility for a decline.

Tom Stallkamp, an industrial partner at New York private equity firm Ripplewood Holdings and former Chrysler president, said on Monday the U.S. economy was in recession and the auto market would not begin its recovery until 2010.

“It’s going to be hard to get to 14 (million),” he said of 2009 industry sales. “Fuel is still scaring people.”

Ford Motor Co (F.N) Chief Executive Officer Alan Mulally on Monday predicted flat sales in 2009 and a possible recovery starting late next year or in 2010. “The consumer is the key to everything and of course the consumer is being squeezed.”

August was the first time this year the U.S. industry showed a sales gain from the previous month, suggesting a bottom may have at last been reached, General Motors Corp (GM.N) President Fritz Henderson said.

“It feels like like all of the negative variables are factored into the market,” he said on Monday, echoing predictions for flat sales next year.

Jerry York, a veteran industry executive and adviser to long-time industry investor Kirk Kerkorian, remains extremely negative on the U.S. economy for the next couple of years, but said on Monday the auto sector may have seen the worst.

“We are more or less at the bottom, barring some just absolute cataclysm in the Middle East that would really curtail the flow of petroleum,” he said.

It is hard to believe things could get much worse, Tim Leuliette, CEO of auto parts maker Dura Automotive Systems Inc, said on Wednesday.

“Then again, it was hard to believe that AIG could go bankrupt,” he said. “It was hard to believe Lehman could go bankrupt. It was hard to believe you could use GM and ‘bankrupt’ in the same sentence.”

(Additional reporting by Poornima Gupta, Nick Carey, David Bailey, Soyoung Kim and Kevin Krolicki, editing by Gerald E. McCormick)

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