Crystal Ball Manufacturing IRN’s Cridler Auto outlook: The road levels out
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By Julie Cridler
Senior Market Analyst
IRN Inc.
Is it time yet for the automotive industry to exhale? We’ve been on the road to recovery over the past year, but it has been a slow process. Overall, 2010 will likely be remembered as the year when consumers cautiously came out of their bunkers and began to show some renewed interest in buying cars. All indications are that 2011 will be a further improvement over that, but by the standards of the years preceding the recession, 2011 is still not going to be a barn burner of a year.
Many of the economic indicators are beginning to stabilize. Consumers are starting to save more and are also getting a handle on credit card debt. The primary area of potential concern going forward is the unemployment rate. While the economy is starting to add jobs, the rate of increase is not fast enough to make a significant dent in the massive number of jobs that were lost in the past couple years.
Nonetheless, consumers are starting to feel a greater sense of security. The elections are over, so that big question mark has been removed. Furthermore, concerns about a double-dip recession are abating. This is largely due to the fact that the rate of recovery has been so sluggish. Had the recovery occurred rapidly, we would have been at a greater risk of slipping back into another recession.
So what does this mean for automotive production and sales in North America? It means that consumers are interested in buying vehicles again, and more of those that are interested have the wherewithal to act upon it.
For automotive production, IRN projects an 8.6 percent increase in 2011 over the levels of 2010 — reaching a total of 12.6 million units (vs. a projected 11.8 million units for 2010).
In terms of sales, we are projecting a seasonally adjusted annual rate of 11.5 million for 2010 and 13.4 million for 2011.
While the outlook varies depending on which OEM you are talking about, in general the OEMs are expecting positive results, even though many are tempering their expectations with caveats that the economic recovery is happening at a sluggish pace.
Reports from the Los Angeles Auto Show, where industry executives recently convened, indicated that most OEMs are predicting sales results for 2010 to come in at 11.5 million units. For 2011, the general consensus of this group is a range of 12.5-13 million units — not dissimilar from what IRN is projecting.
The recent IPO at GM is a strong indication of both investor confidence in the company itself as well as a strong vote of optimism for the automotive industry overall.
It is also a positive precursor for the upcoming Chrysler IPO, which is expected to occur sometime in the second half of 2011. Chrysler has an arsenal of strong new product to introduce, and this will further help advance their position in the domestic industry.
Ford management claims to be ready with a strong lineup of product for consumers whenever the market takes off.
We will continue to see a heated battle for market share positions amongst the OEMs with a North American presence. Recently Hyundai-Kia outsold Nissan in the U.S. market in October, overtaking Nissan for the number-six sales position.
Much of the organic growth in the North American market is expected to come from BMW, Volkswagen (Audi) and Hyundai/Kia, as all have made recent significant investments to their production facilities in this market.
Honda, which had slower growth than it projected in the last few months, is working on new technologies and products to boost its position.
During the recessionary period, automotive suppliers got down to business cutting costs and rationalizing their operations and there is evidence that most were successful in aligning their breakeven point to a lower level of North American production. Nonetheless, we are still in a very polarized environment where the weak companies are floundering and the stronger companies cannot keep up with demand.
The most important thing suppliers should focus on is to avoid letting the progress in cost cuts and rationalization languish. For the foreseeable future, increased volatility is likely to be the name of the game, so suppliers should plan their operations around that to every extent possible.