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November 23, 2010 01:00 AM

2011 might be better than you think for car sales

Jesse Snyder and Mark Rechtin, Crain News Service
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    DETROIT (Nov. 23, 2010) — After two years of wrestling with a weak market, the auto industry is suddenly expecting a much stronger 2011 and beyond.

    Fears of a double-dip recession have eased, and not-so-skittish shoppers are starting to buy because they want to, not just because they have to.

    Instead of yanking back on the reins, auto execs now must decide how quickly to ramp up production.

    Nissan brand boss Al Castignetti said he is exploring “how quickly we can react to a bigger market” because boosting factory output takes at least 90 days.

    Credit is more accessible, dust from the election has settled, and there's growing sentiment that the logjam of pent-up demand has sprung a leak.

    “We're starting to see some of the pent-up demand release and some confidence coming back to the market,” said Toyota brand boss Bob Carter. “We're starting to see 'want' purchases as well as 'need.'”

    Mr. Carter sees a “high 12 million” sales year in 2011, and Mark Fields, Ford's president of the Americas, said it might be 13 million. In 2012, look for 15 million U.S. sales, said Jeff Schuster, top auto forecaster for J.D. Power and Associates.

    “The question for us is going to be: Do we need to be more aggressive in planning for 2011?” Mr. Castignetti said.

    A rise in fall

    The industry mood shifted rapidly this fall as moribund retail demand revived.

    Through August, sales ran 8 percent above the pace of 2009, which turned out to be a 10.4 million-unit year. But fleet volume was the driver; retail sales barely budged.

    Overall sales were a bit better in September. And in October the seasonally adjusted annual retail sales rate hit 10 million for the first time this year, pushing the overall SAAR to 12.2 million on Power's scale.

    Retail also paced sales in the first half of this month, said J.D. Power's Mr. Schuster, who is forecasting another 12.2 million SAAR for November.

    With retail demand starting to revive, executives interviewed at the Los Angeles Auto Show last week were virtually unanimous in predicting 11.5 million sales this year. Most forecast 2011 volume in a narrow band of 12.5 to 13 million.

    In fact, the only disagreement among executives and analysts is about the pace of growth starting in 2012.

    The good news? Everybody sees nothing but gains ahead. The only question is whether the growth will be steady or heady.

    One of the least optimistic is John Mendel, executive vice president of American Honda Motor Co., who expects stair-step growth for several years.

    “I still see a relatively metered recovery for the next two, three, four years,” he said, adding that the recession created a long-term change in consumers. “Maybe the new [natural] sales level is 13 or 14 million.”

    By contrast, Power's Mr. Schuster sees sales booming to 15 million in 2012, which would be 2.2 million, or 17 percent, higher than his forecast for next year.

    He argued that the auto market just switched from turnaround to expansion mode.

    “We can safely say that it's a strong or at least modest recovery,” Mr. Schuster said. “What the auto industry needs now is a couple of good quarters from the general economy.”

    The new optimism was one reason investors clamored for General Motors shares last week.

    Positive signs

    Auto executives remain cautious but are focusing on positive signs.

    Mr. Mendel noted higher savings rates and lower credit card debt.

    Credit is more available, said Nissan's Mr. Castignetti, “and we're past the election, and people are more settled now.”

    Don Butler, Cadillac's vice president, and Jim O'Sullivan, Mazda North American Operations' CEO, see pent-up demand fueling growth.

    “People need to replace vehicles,” Mr. O'Sullivan said. Mr. Butler said auto sales will jump quickly whenever U.S. unemployment drops.

    Since September, fear that the sluggish auto recovery might falter seems to have evaporated.

    Even Honda's Mr. Mendel dismissed the potential of a double-dip recession.

    “You have to have a big up to have another dip,” he said. “When people talk about double dip, it was in conjunction with a rapid recovery, where we overinflate the cake. I haven't seen that.”

    Auto makers see opportunity ahead

    Mr. Butler and Johan de Nysschen, president of Audi of America, see strong growth in the luxury segment next year.

    “For the luxury buyer, that sense of confidence about their own situation has probably tended to return a little bit more quickly than for the general market,” Mr. Butler said.

    Ford's Mr. Fields said the car maker is prepared for the moment the market takes off.

    “People are always interested in cars,” he said. “When that pent-up demand does materialize—whether it be marginally or in fits and starts—we'll be there for consumers.”

    Reporters Jamie LaReau, Lindsay Chappell, Rick Kranz, Diana T. Kurylko, Ryan Beene and Bradford Wernle contributed to this report, which appeared in Automotive News, a Detroit-based sister publication of Tire Business.

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