Auto Sales Forecast – 2008 Could Look Like 1993
By Brendan Moore
The Reuters Auto Summit was held last week in Detroit, and among the many speakers during the summit were three veteran auto industry investors – Thomas Stallkamp, former president of Chrysler and now a partner with Ripplewood Holdings, a private equity firm, Jerry York, current advisor to billionaire investor Kirk Kerkorian, and finally, financier Wilber Ross.
All three men saw a lousy sales year coming in 2008 for the American new car market, with Stallkamp forecasting a possible 14.5 million new vehicles sold next year. The last time that happened in the U.S. was in 1993, which was a very bad year for the auto industry, for new-car auto franchises, auto finance companies, etc. I know – I was at a large auto finance company in 1993 and it was a tough, ugly year for us in terms of sales and financial results.
The three investors’ views of the United States 2008 new vehicle sales market contrasts with the various automakers’ predictions for 2008 sales, which range from a little more than 16 million units down to the lowest forecast (from Nissan) at 15.5 million. New passenger-vehicle sale in calendar year 2006 were approximately 16.5 million units; 2007 sales are currently trending to end up at around 16 million.
From Reuters (in italics):
“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 and former 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.
For those of you younger than me, the trigger event for the brutal 1993 result was the economic recession in 1991. It was bad for auto sales in 1991, worse in 1992, and registered its full negative impact in 1993. Which more or less begs the question: If we have a recession in the United States in 2008, and sales are at 14.5 million to 15 million, then what will they be like in 2009? Or, for that matter, 2010?
Surprisingly, the most pessimistic of the investors, Stallkamp, sees U.S. auto sales bouncing back quickly in 2009. That sort of quick recovery from such a severe slump would be unusual, but that’s the way he’s calling it.
None of the three investors see massive discounting or rebates by the manufacturers if 2008 goes south in terms of sales; what they see is production cuts for the U.S. market, and for those that have the ability to sell overseas, a concerted effort to make up for some of the loss by selling more in other countries, particularly developing markets.
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