2010 Vehicle Sale Forecasts 1 14 10

Automotive Retail Industry NewsJanuary 14, 2010

Analysts see signs of life after a miserable year

Mark Rechin

Automotive News

LOS ANGELES -- Sales in 2009 were truly terrible, and, no, happy days are not

here again. But sift through the data and talk to numbers crunchers and you'll

discover surprising pockets of optimism about the year ahead.

U.S. new-vehicle sales finished at 10,431,509 -- down 21 percent from 2008 and

off 35 percent from 2007. It was the worst year since 1982 and the lowest since

1950 on a per capita basis. December sales rose 15 percent; but while 18 brands

trumpeted double-digit increases, those gains were based on awful 2008 results.

Still, 2010 is shaping up better than was anticipated only a few months ago.

Industry analysts point out:

-- The sales rate accelerated in late December.

-- Vehicle scrappage exceeded sales last year for the first time since World War

II, which suggests loads of pent-up demand.

-- Leasing is likely to pick up.

-- Transaction prices will rise.

-- Lower fixed costs mean dealers and automakers can be profitable at a reduced

selling rate.

Jesse Toprak, vice president of industry trends and insights for TrueCar in Santa

Monica, Calif., says: "Unless something unforeseen happens, 12 million units or

more should be easily achieved."

Other industry trackers are more cautious. Even so, they say automakers,

dealers and suppliers will do much better in an 11.5 to 12 million-unit market than

they would have a couple of years ago.


Last year 14 million to 14.5 million vehicles were scrapped in the United States,

Toprak says, the first time the annual scrappage rate exceeded sales since

World War II.

Anthony Pratt, senior analyst at PricewaterhouseCoopers Autofacts group, says

the average age of vehicles in operation in the United States is "pushing 10

years."

He says the cash-for-clunkers program was short-lived and limited to older cars,

meaning the United States will have less of a payback period from pull-ahead

deals compared with countries with broader, longer-lasting programs.

Dan Montague, Autofacts senior analyst for North American production forecasts,

says that between last year's production cuts and cash for clunkers, inventories

became so tight that some consumers couldn't find the vehicles they wanted.

With automakers cautiously rebuilding stocks, he says: "We're getting a greater

variety of desirable vehicles on dealers' lots that weren't there, especially in the

fuel-efficient vehicles."

Production is bouncing back from last year's depressed levels. CSM Worldwide,

a forecasting firm in suburban Detroit, says North American production will rise

56 percent in the first quarter to 2.63 million units and increase 51 percent to 2.68

million in the second quarter.

"An enormous pool of pent-up demand has accumulated," says Joe Baker,

senior manager for North American vehicle forecasts at CSM.

Getting better

2010 U.S. sales estimates, in millions of units

J.P. Morgan 12

TrueCar 12

CSM Worldwide 11.8

Edmunds.com 11.5

J.D. Power 11.5

PricewaterhouseCoopers Autofacts 11.4


Consumer confidence

Analysts say lenders are likely to increase leasing, aided by stronger sales of

asset-backed securities to institutional investors.

In 2009, leasing accounted for 14 percent of transactions. Toprak predicts the

rate will climb to 16 percent in 2010, matching the 2007 level.

Macroeconomic factors also figure in. The Conference Board reported that

consumer confidence about short-term economic conditions rose in December

for the second consecutive month, hitting the highest level since December 2007.

In terms of consumer attitudes about car buying, Montague says, confidence

"has come back and eclipsed pre-recession levels."

Toprak says new-vehicle sales historically correlate with the stock market and

new-home sales, and both show signs of recovery. He predicts sales of full-sized

pickups will lead the comeback.

In a report, J.P. Morgan analyst Himanshu Patel noted that vehicle sales usually

begin rebounding a year or even 18 months before unemployment reaches its

lowest point.

"Carmakers noted that December's sales rate accelerated notably toward the

end of the month, perhaps indicative of further ... improvements in January,"

Patel said. "We remain bullish of a U.S. SAAR recovery through 2012 and do not

believe the recent SAAR rise is inconsistent with rising unemployment."

J.P. Morgan predicts 12 million sales in 2010 -- about 500,000 more than most

automaker forecasts.

And dealers and auto companies are prepared to earn money on fewer sales.

"As manufacturers continue to monitor production more closely, incentives are

less likely to fluctuate as much as they did in 2009," Edmunds.com noted in its


2010 forecast. "Transaction prices will increase as new products enter the market

and production rates are more aligned with demand."

'Small victories'

Jeff Schuster, executive director of global forecasting at J.D. Power and Associates, agrees. "Fixed costs have been trimmed at all levels, allowing for profitability -- even at a reduced selling rate," he says.

"The industry has an opportunity in 2010 to build on a series of small victories -- such as improved pricing and appropriate inventory levels -- to drive a stronger recovery."

What's the new "normal" sales level, one not juiced by monstrous incentives? Toprak pegs it at 14.5 million units, though not until 2013. J.P. Morgan expects 14 million in 2012. Either way, it's a far cry from the halcyon days earlier in the decade, when the market repeatedly tickled 17 million sales.

2010 Vehicle Sale Forecasts 1 14 10

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