2010 outlook auto industry, loans rebound
Erich Merkle is very upbeat on the beat-up U.S. auto industry, which he predicts will rebound next year. And his sidekick, Andrew Samrick, is utterly confident that bank credit for business will suddenly pop open in mid-February.
The catch is that Merkle's prediction is his "macro view" for the entire United States; he cautioned that Michigan's recovery will lag behind.
Merkle, president of Autoconomy.com, is an auto industry analyst, and Samrick is president of Simplicity Tactics, a manufacturing consulting firm. Autoconomy and Simplicity Tactics joined forces with BDO Seidman tax experts last week to present the 2010 Automotive Outlook and Planning Session at GVSU for companies that supply the auto industry.
The tax experts were on the program because the predicted recovery of the auto industry will entail tax issues and opportunities that the re-invigorated auto suppliers should be prepared for.
Merkle, who has 10 years of experience in auto industry analysis, said he believes sales of light vehicles in the U.S. will total 10.4 million this year, compared to about 12.5 million in 2008 and 16 million in 2007.
"Next year, I'm looking at 12.5" million light vehicle sales in the U.S., added Merkle. His chart shows an optimistic increase each year, possibly reaching sales of 16 million in 2015.
As to production of light vehicles in North America, Merkle is predicting that 11.4 million will be made in 2010. That compares to a "pretty dreadful" 2009, with experts predicting that the total number made in North America this year will turn out to be about 8.6 million.
Oil prices have been edging up, and if that continues, production of light vehicle components in China and India for shipment to the U.S. market will become less feasible due to the shipping cost.
Merkle said he bases his projections on the history of prior recessions and the fact that the extension of the new homebuyer tax credit has been extended through April and is helping the housing industry recover. Merkle said single family housing inventories are "dropping like a rock," which will soon lead to "new homes being built again." New home construction is directly tied to sales of new pickup trucks, and pickups are a very profitable segment for the auto companies, he said.
Another indicator is U.S. non-farm productivity, which increased by more than 8 percent in the third quarter.
Unemployment is "ebbing," said Merkle, who does not believe that the recovery from this recession will be "jobless." However, he said employment is not a leading indicator for the health of the auto industry because it has historically lagged behind increases in auto sales.
Real Gross Domestic Product will grow by 4 percent this quarter and in the first quarter next year, he said.
November retail sales were up 1.3 percent, he noted.
With the exception of Ford, the Big Three aren't out of the woods yet, said Merkle, although GM did have some good news in November about employees being called back to work.
"GM has lost a lot of (market) share," said Merkle, who displayed a graph showing that GM had about 20 percent of the U.S. market in June. In the summer of 2007, GM still had 26 or 27 percent of the U.S. market. "They will go lower," he said. "They're not going to hold at 20 percent."
Chrysler has declined to below 10 percent, said Merkle, who criticized that company's vehicle designs.
He had high praise for Ford, and the up-and-coming Hyundai/Kia vehicles. During 2009, Ford was "tremendous" because it actually gained "one full percent of market share, which is phenomenal in this industry." He said next year's launch of a new Ford Fiesta "will actually redefine the sub-compact car segment here in the United States," because it is well-designed "fundamental transportation" that will appeal to young people.
The "quality gap" is closing, he said, which means the U.S. companies' cars — plus Korea's Hyundai/Kia lines — are now engineered almost as well as Toyota, Honda and Nissan. Hyundai/Kia will be "one of the fastest growing auto makers" in the world, according to Merkle.
Samrick said business should "watch facts, not the news," adding that all the leading indicators lately have pointed to the economy getting stronger, and "the order book continues to be stronger than we expect."
There will be no double-dip in the economy, he said.
"The commercial credit markets are 10 weeks from an explosive pop," said Samrick. "The credit spigot is going to open up very wide." He specifically predicted that banks would loosen credit in mid-February.
Samrick criticized those in the business community who are still afraid of the economy, which has led to a "lethargic pace" in business planning for the year ahead that "will stymie ramp-up" of the economy.
"Most businesses aren't ready to grow," he said, but the return of commercial credit will make growth possible for those that are ready.
In the question-and-answer session following the presentations, Merkle conceded that the commercial/industrial real estate industry will continue to have problems in 2010. “We'll see some foreclosure," he said.
Samrick agreed that Michigan has a glut of commercial properties available, but said that will be a boon when the recovery kicks in and investors are looking for great deals in manufacturing plants and equipment.
Merkle said his forecast of a "brighter future" is the macro economy.
"If you are looking at things from a Michigan perspective, it will seem much worse," he said.
One of the problems: There continues to be a "real migration" of manufacturing to the Southern states.