Thursday, March 1, 2007

Auto Sales Could Slow

From the WSJ:

an automotive outlook report this week, IRN Inc., a Michigan market-research firm, predicted an economic slowdown in 2007 and says "sufficient evidence" supports a recession sometime this year. "Look for other analysts and the Big Three auto makers to make some significant reductions by the second quarter regarding their outlooks for 2007," it said.

"The automotive outlook is too high" on Wall Street, said Erich Merkle, IRN's forecasting director, in an interview. Citing a drop in housing starts and rising durable-goods inventories, he added, "I think that there are a lot of folks out there that have yet to account for the possibility of a significant slowdown in economic performance as 2007 unfolds."

IRN reduced its 2007 sales forecast in December to 16.1 million cars and trucks from 16.3 million. That number could go lower, Mr. Merkle said. Last year's sales totaled 16.6 million, according to Autodata Corp. Analysts and economists who forecast car sales are considering economic indicators, but most have stuck with their predictions.

The US auto industry has many problems. First, they are tied to selling large autos in a rising gas environment. At some point consumers will become more interested in MPG than horsepower and size. That shift may already be taking place.

Secondly, they are all looking at serious cost issues that they most negotiate around. Health costs especially are a big issue.

Finally, there is the US consumer's position. Consumer spending as increased continually since 1996. At the same time, household debt outstanding has increased as have household debt payments. At some point the consumer will reign in his spending and start to focus more on paying down debt.