Vehicle Sales Are Rebounding But Beware of Wet Blankets

Orlando, FL A recovering U.S. economy is driving growth of weak new-vehicle sales, but plenty of risks remain in the market, a leading forecaster says. If we don't remain disciplined, we could get back into our bad habits, says Jeff Schuster, executive director-automotive forecasting at J.D. Power & Associates. Schuster points specifically to keeping production in line with demand, a delicate balance

Orlando, FL — A recovering U.S. economy is driving growth of weak new-vehicle sales, but plenty of risks remain in the market, a leading forecaster says.

“If we don't remain disciplined, we could get back into our bad habits,” says Jeff Schuster, executive director-automotive forecasting at J.D. Power & Associates.

Schuster points specifically to keeping production in line with demand, a delicate balance that was thrown out of whack in 2008 and left thousands of vehicles collecting dust as consumers reined in spending.

The deadly combination drove the newly reorganized General Motors Co. and Chrysler Group LLC into bankruptcy.

“Don't over produce,” Schuster warns at a J.D. Power conference prior to the opening of the annual National Automobile Dealers Assn. convention here. “Have the right level of capacity.”

So far, capacity has come down to more reasonable levels, with the Detroit Three taking out some 10%. But too much still remains, Schuster says, and only will grow in coming years with more auto makers, such as Hyundai Motor Co. Ltd, expanding their presence in the U.S.

“So a risk for the industry to fall back into its bad habits exists,” Schuster says, fearing a return to the days when deep discounting kept vehicles rolling out of factories but eroded profitability for both the auto makers and their dealers. “If someone breaks ranks, it becomes chaos.”

An influx of smaller, more-efficient vehicles will satisfy consumer demand as fuel prices once again begin rising. But a fleet with 60% to 65% small cars and cross/utility vehicles by 2010, as J.D. Power forecasts, might be too much.

“Consumers are open to small cars,” Schuster says, “but I don't think they are ready for the barrage that is coming.”

Buyers will need time to adjust to small cars with higher content and higher sticker prices, he adds.

But a general improvement in the U.S. economy is driving optimism at J.D. Power.

J.D. Power's forecast calls for 11.7 million light vehicles in 2010, up 13% over 2009.

The company sees the industry reaching 15 million unit-sales annually by 2012, with retail deliveries comprising 12.5 million of that total.

“Slow, steady growth, but growth.” Schuster says.

Among the reasons: New-car loans are a bit easier to come by. “Credit has come a long way,” he says, “(but) it has a long way to go.”

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