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Auto sales could hit 15-year low
Sun Nov 18, 2007 8:13pm EST

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DETROIT (Reuters) - Three top investors in the automotive industry painted a grim picture on Sunday for the sector in 2008, with one executive predicting a possible slump in U.S. sales to levels not seen in 15 years.

The weakest forecast is for a possible 9.4 percent decline. But all three -- Jerry York, an adviser to billionaire investor Kirk Kerkorian; financier Wilbur Ross; and Thomas Stallkamp, a former Chrysler president -- were more pessimistic than many in the battered industry.

"While I am very negative on the autos sector over the next 12 to 18 months, I'm just not sure how bad it could be," York, a former board member of General Motors Corp and chief financial officer of Chrysler, said at the Reuters Autos Summit in Detroit. "We all know housing is a debacle."

U.S. light auto sales could slip to 15.5 million or less next year, York said. That would be down from near 16 million this year, a drop of 3 percent to mark the second consecutive annual decline and the lowest tally since 1998.

Stallkamp, a partner at private equity firm Ripplewood Holdings, which owns several auto parts makers, said the market could slump to 14.5 million, the lowest level since 1993.

"I'd say it's somewhere between 14.5 (million) and 15 (million), somewhere in there and it's hard to tell," he said. "Today, I'm a little more towards 14.5 (million)."

Such a decline would be felt throughout the sector, CSM Worldwide auto analyst Michael Robinet said.

"That would certainly be one of the worst years on record given the gravity of the industry," he said.

U.S. auto sales fell almost 11 percent in 1991, when the economy was in recession.

Ross, an investor who specializes in restructuring troubled businesses and has assembled an auto parts empire through acquisitions, said the U.S. consumer was "pretty well tapped out" as he predicted auto sales would slip a few hundred thousand units from this year.

Most automakers have predicted U.S. auto sales next year in the range of just under 16 million to 15.5 million, with Japan's Nissan Motor Co Ltd at the low end.

However, the crumbling U.S. housing market is spooking consumers, the investors said.

"I hope I'm wrong on 14.5 (million) to 15 (million)," Stallkamp said. "But I think the mortgage issue is going to freak people out and that will hit pretty hard in '08."

Ross called it "a sort of poverty effect from house prices going down."

The U.S. automakers' market shares will suffer more than foreign rivals in such a weak market, Stallkamp said.

"You're going to see some continued retrenchment in construction and the building trades that will hit the Big Three particularly," he said.

The investors see the Big Three U.S. automakers cutting factory production instead of returning to overly generous discount deals such as GM's zero-percent financing offers, first rolled out after the September 11, 2001, attacks.

"I think you're going to see less discounting in general," Ross said. "Now that they have a little better control of the factories and now that the factories are a little more right sized."

None of the three predicted a recession for the U.S. economy in 2008, but York said "it feels like it's on the way."

Stallkamp, on the other hand, sees global credit markets stabilizing in the first half of 2008, with the holiday shopping season a key indicator. He sees U.S. auto sales coming back in 2009.

The U.S. automakers, already slashing jobs and factory production, will "have to get smaller faster" and push for more sales overseas in a weaker market, Stallkamp said.

"Maybe I'm too pessimistic on how low it's going to go," he said of the U.S. market. "Maybe I live in Michigan. This is a pretty crummy place to be right now."

(Additional reporting by Poornima Gupta, James B. Kelleher and Kevin Krolicki; Editing by Braden Reddall)

 

Though I don't have any hard numbers to prove it, I think lower overall sales this year and next will be tied to two things.....First, record-high gas prices (and climbing), especially for low-gas-mileage vehicles, and, Second, the wave of housing foreclosures (or at least the threat of a foreclosure). If, and when, people face the choice of a new-car payment or keeping a roof over their heads, the choice, most of the time, is obvious.

 

Maybe just maybe everyone has a car, it just seems odd even with the amount of people worldwide to continue to sell millions and millions of new cars every year, where are they really going, and what about all the lots full of used cars.

 

Down here, sales aren't bad, but the newer vehicle sales are skewed toward smaller-sized models than they were before.

 

Demand in India and China, for both new and used cars, is exploding as millions of people who never had cars before now do. That is why world oil use.....and demand for oil as well......is also inceasing rapidly. What auto companies don't manage to sell here in the U.S., they may make up for it in China.........Buicks, especially, are popular there.

 

Many factors:
- tightening credit
- actual or perceived falling house prices
- climbing gas prices
- an ever increasing supply of decent and not very old used cars
- TAXES - may not be changing much Federally on rates, but state and local, including property and sales taxes keep climbing, plus more and more people will be caught in the AMT net and owe BIG TIME
- insurance premiums climbing
- tuition skyrocketing - even with available loans and scholarships many families with kids are being CRUSHED by tuition and BOOK prices - the whole college book scene is a GIANT RACKET - issue a book this year for $100 - becomes a $25 used book next year only because the 'revised edition' has 10 words different and is 'required' for new students. Ya think the book stores on campus are making a killing?
- other demands competing for the money - everyone wants cool cell phones, climbing cable and satellite packages, iPods, broadband, HDTVs, more computers, color printers with insanely priced ink and paper, and on and on...

Here's another factoid for ya... $1 of every $8 earned by average workers goes to social security (part from employee's paycheck and part from employer - affects employee either way).

 

Plus new cars are lasting longer. I don't recall the exact numbers but the average age of cars on the road is fairly old. People can get nice used cars for a fraction of the new price.

this specifically is about new cars, as well if times get tough sure people will keep their older cars running longer.

I had a used car that was fine but needed some work say several hundred dollars. I was already looking for a newer car at the time so I decided to trade the old car in but in fact one payment on a new car would have got the old car back in shape and probably running for another 6-months or more.

As people have pointed out, less housing equity and higher home equity intrest rates will do a number on sales.

I'm looking forward to seeing the incentives that will be out so makers will try to keep their sales up.

 

I am a cash buyer and have been looking for a possible purchase right after the first of the year. I have to say that I am not that thrilled with the choices right now. I can afford gas and don't drive that much but I have no interest in having a car that gets 18mpg five years from now. It seems that most everything I am looking at is in the 18 to 22 real world values. I may just put a couple of grand in the GS and drive it for another few years. It may come from downsizing but I believe that we will have some executive level sedans with better mileage in the not too distant future and it will be worth waiting for. Heck, I even heard Nissan is going to bring diesels in next year I believe including in the Maxima. Right now, the MB diesel is the only vehicle that looks tempting but I just can't get over having a problem with MB in general.

 

It is true that diesels have been (foolishly, IMO) neglected in the American market. That may change somewhat now with the introduction of low-sulfur diesel fuel to America, which is something that is also overdue and that we should have gotten years ago. More stations now are also selling diesel fuel. Unfortunately, some of the benefits of low-sulfur diesel fuel are offset by its generally higher cost.

If you are interested in a new diesel in the near future, and don't want a M-B product (and I don't blame you there), take a look at some of the VW diesels. They were on hold in the American market for a year or so, but should be shortly on the way back. However, VW's, in general, while a little more reliable overall, share some of the same M-B problems with electronics.

 

Since you can afford a new vehicle and the gas for it, why do you have 'no interest in having a car that gets 18mpg five years from now'? Is it that you think it won't look 'PC' enough? Why not get a GS450h?

 

I know that in my district its DEADLEY SLOW. No one is hitting there numbers. I know that October, November (the first part ) are slow and December is a wash until after Christmas. This year is unlike any I have seen in 11 years. All We can hope for is to rock and roll the last week of December. February will be scary next year if things keep going at there current rate.

 

I don't see a potential MB buyer cross shopping VW no matter how strong a case may be made for the goodness underneath, me included. I am a past diesel owner so I am very well aware of the advantages and limitations of diesels, fueling stops have to be planned for around here for one. If I wait I know there will be more choices in gas, gas-hybrid, diesel, and eventually diesel-hybrid as well as some other innovations. And that may be exactly what I do. Just not that thrilled with the offerings right now. The S550 is a great car and a 750 can be gotten at a good price before the new one bows with much better driving involvement than an LS but neither option does much for me as a long term purchase. And the nature of them as depreciating assets does little to make me get the checkbook out.

 

Just because you can afford something doesn't mean you still don't discriminate in the purchase. I can afford to put gas in an 18mpg car five years from now but overall, I choose not to. If the best use of money, even with all the rationalization in the world over how many miles I drive and how much gas at five or ten dollars a gallon is not a bankruptcy event for me, I don't find the driving experience offered to offset the unbridled joy of putting a $100 in a tank of gas in a sedan. Maybe that's the future but I prefer to shop alternatives. And my guess is that the resale on the current sedans five years from now won't be great. Just consider me someone who appreciates the driving experience but who can also be a mighty cheap son of a gun on certain things. Like I said, once you can afford pretty much anything out there, "image" thoughts become insignifcant relative to your estimation of the value in the decision.

Why not the GS450h? I just don't like the current GS and I don't find the hybrid's mileage to be anywhere near enough to outweight what I don't like about it and put it on the list. The last thing the GS needed was to trade 0-60 time for the weight gain of the hybrid and the 460 is overall underwhelming to me. I could care less about being PC looking in my car. I do enjoy driving which is why Lexus is pretty much off of my list. I've had my GS for close to seven years now and my wife has had hers for almost five and I want a more engaging drivers experience than offered by Lexus. The second gen 430 responded to the Bilstein Sports and TRD blue bars well enough for me to be content for 80K miles. My wife's GS300 with Bilstein HDs and TRD Sportivo has the better ride/handling of the two and is more the keeper right now. If I were to get a GS size car right now, the M45 would probably be the winner although the 5 series does justify it's higher cost IMO (any comments Doug?). Strictly my opinion and biased towards wanting a more involving driving experience. As I said, I find no joy in stuffing a hundred dollar bill in the tank in the not too distant future and the choices right now are just not very compelling.

 

Absolutely. You hit the nail on the head. Almost nothing I can think of in vehicle purchases is worse than the "image" factor. Image, and the desire to keep up with the Joneses, suckers a lot people into making needless, poorly-conceived, or badly-thought-out vehicle purchases. In fact, I consider that part of our job here on CAR CHAT.....for the more car-knowledgeable people to give good advice to the less car-knowledgeable people and help keep them from wasting their money. And, if we can't make rational decisions OURSELVES, with or own money, on our own vehicle purchases, we're certainly in no position to advise others. For instance, I spent almost a year looking at and test-driving various new cars (not just for CL reviews, but for myself as well) before deciding on a new Outback. And I know I made the correct choice.

 

But what alternatives are there if you want a mid size sedan that meets:

?

Whether $1, $2, or $5 a gallon, sports sedans have always had lousy gas mileage.

I'm driving my Miata more and more since it gets 30mpg and yet is the most fun car I've ever owned and you can't beat driving top down in Florida Fall/Winter/Spring (and even summers in morning and evening).