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Auto Industry to Recover But Woes to Continue

Small cars will represent half of global growth during the next decade, greatly challenging automaker profitability.

by on Aug.06, 2009

John Hoffecker of AlixPartners

Auto industry will rebound in 2013.

The auto industry is passing through a sweeping transition that will see it selling fewer and smaller cars for the foreseeable future, leaving profits squeezed.

John Hoffecker, a managing director of Alix Partners LLP, told the Center for Automotive Research annual Management Briefing Seminar in Traverse City, that sales of new vehicles are likely to recover relatively quickly.

However, sales are very likely to “plateau.” The U.S. market is a growing market but the old sales forecast of around 17 million to 18 million are likely to prove difficult to reach, even though the US population continues to expand and add new households.

“Because of well-known factors earlier this decade, like the housing and stock bubbles, the auto industry skipped what would probably have been a cyclical downturn around 2001 or so, and about 17 million units of sales were ‘pulled ahead,’ Hoffecker said.”

In the last two years, the industry has in turn given back about 7 million units, leaving 10 million units to be foregone before the industry gets back to zero.

“The good news is the indicators we’re looking at say the industry rebound will probably come earlier than some have been, around 2013. The bad news is, when the rebound comes it is quite likely that sales will plateau at 15 million to 16 million per year and that this ‘new normal’ level of demand will last until the peak of the next business cycle,” Hoffecker said.

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