Auto Sales Forecast – 2008 Could Look Like 1993

By Brendan Moore

11.26.2007

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.

COPYRIGHT Autosavant.net – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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9 Comments

  1. From the Wall Street Journal:

    Former U.S. Treasury Secretary Lawrence Summers says “the odds now favor a U.S. recession that slows growth significantly on a global basis.” Mr. Summers, in his Financial Times column, posted on the newspaper’s web site Sunday night, wrote that just three months ago “it was reasonable to expect that the subprime credit crisis would be a financially significant event, but not one that would threaten the overall pattern of economic growth.”

    “This is still a possible outcome but no longer the preponderant probability,” he said.

    Put that in your pipe and smoke it! We might be at 14.5 million cars sold next year with no trouble at all. Who says 14 million?

  2. I think we’re headed for a recession, too, but I think it will be short and mild.

  3. The mid-size segment (Camry, Accord, etc.) will be very tough. Trucks and SUV’s will be very tough because gasoline will continue to rise, recession or no recession. If we have a huge drop in auto sales and gas keeps going up, it will be a bloodbath in the SUV segment, maybe crossovers, too.

  4. Two can play this game:

    The Wall Street Journal this morning –

    Battered stock and bond markets are sending an increasingly ominous signal that a U.S. recession could be near.

    The markets, however, haven’t swayed Federal Reserve officials and most private economists from their view that the nation’s economy can escape a downturn and get back on a steadier course.

    The disparity between those two views of the economy — one growing bleaker, the other remaining sanguine — stood out starkly last week.

    As the article itself points out, neither the Fed nor the market has ever been any good at predicting when a recession would happen or long it will last.

  5. At this point I think stagflation and devaluation of the dollar is a greater danger than recession. That will hurt everyone due to consumer confidence issues, but will probably hurt VW and other importers the most.

  6. Mark in AZ have some interesting points.

    Even if Toyota had lots of cash in their reserves, their SUV/pick-up truck line-up (Tacoma,4Runner, Tundra, Land Cruiser and Sequoia) could (or would depending of how you observe the situation) be severly hit, draining some cash drain.

    Perhaps Nissan might face a similar situation with the Armada and the Titan even if they have a chaperon like Renault. When you see some incentives on the Tundra, it’s time to ponder some questions.

    We had faced some divorces in the car industry (BMW-Rover, Dailmer-Chrysler, GM-Fiat). Depending on how long and how hard it’ll hit, we could witness some others “re-marriage” or “mergers”…errr I mean “alliance” or more realisticaly some aquisitions but this time the automakers will shop to find the right shoe who’ll fit perfectly to their foot or as a French proverb said “trouver la bonne chaussure pour son pied” (find the right shoe for your foot). Alan Mullaly said he wasn’t interested to partnership, will the recession will force to reconsider his taughts and accept Ghosn’s proposition?

    BMW had a good idea to pass thru the upcoming recession with the release of the series-1, but as the intro of the Packard 120/Clipper during the Great Depression, diluted the image of Packard, will history repeat itself once again with the 1-series who could cheapen BMW image?

  7. I agree with van tuler, the pickup trucks, SUVs and and crossovers will be the ones that get hurt if them market loses a million units. One thing’s for sure, the small cars won’t be the ones getting hurt.

  8. If the dollar keeps going down it’s going to really whack out the sales of cars like VW and BMW. It will be a difficult profit environment because everything they make in Germany is going to be very, very expensive.

  9. VW and Audi are going to get crushed on the currency conversion if the dollar keeps going down. VW is already in a lot of trouble in that respect, so that scenario would kill them.

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