Market fluid as economy smooths out

Two leading United States economists have predicted a return to more normal economic conditions by the end of 2010.

As a result, they forecast US light-vehicle sales will reach 14 million units in 2011 and grow to old levels of 17 million and above by around 2015.

However, market share among carmakers will remain extremely fluid.

"It's a recovery, but it sure doesn't feel like one," said Nariman Behravesh, chief economist for consultancy IHS Global Insight.

"Unemployment is still a big factor, but consumers are spending. First-quarter growth was the best in about three years."

Driving the recovery will be strong growth in exports as well as capital spending on equipment and high-tech. The main drag is lacklustre capital spending on non-residential construction, and there are worries about short-term commercial real estate exposure, Behravesh said. However, Behravish added the odds of a double-dip recession are about the same as a recovery that actually exceeds predictions. Corporations and banks are "sitting on a mountain of cash", it's just a matter of convincing them to spend and lend it.

Specific to the automotive sector, the sales resurgence will not be driven by a return to the old ways of subprime loans, home equity-driven purchases and an overabundance of cheap leases. Already there is a recovery in delinquency rates.

Rather, the sheer force of demographic trends will trigger a return to more robust sales, said George Magliano, IHS Global Insight director of automotive research.

The surging population of Generation Y is just entering a flaccid job market. But once the economy is rolling, by 2013 about 70 to 75 million young consumers will enter the market.

Also, while scrappage demand may not return to high percentages - thanks to ever-improving quality lengthening the ownership cycle - there is pent-up demand that will see more replacement purchases in the near term, Magliano said. So, who will provide consumers with loans? Already, commercial banks have become aggressive in automotive loan lending, and the industry should look for an increase in zero per cent financing, Magliano said.

"We've frozen the subprime buyer out of our marketplace," Magliano said.

"We're never going to get back to the approval rates in 2005 and 2006."

In terms of market share, IHS predicts GM, Ford and Toyota will collide at 17 per cent share Honda will grow to 12 per cent and Hyundai-Kia, Nissan and Chrysler will be in the 7 per cent range. But these share numbers are in flux, notably because "nobody has captured the younger generation yet".

US LIGHT VEHICLE SALES FORECAST

2010: 11.8 million
2011: 14.0 million
2012: 15.8 million
2013: 17.0 million

Source: IHS Global Insight