On Air Now

Listen

Listen Live Now » 101.9 FM Sioux Falls, SD

Weather

Current Conditions(Sioux Falls,SD 57104)

More Weather »
77° Feels Like: 79°
Wind: S 0 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Today

Partly Cloudy 79°

Tonight

Clear 57°

Tomorrow

Partly Cloudy 82°

Alerts

Global auto sales forecast rosy, with reservations, for 2014

Auto show worker Jorge Martinez details a General Motors 2014 Buick Regal vehicle under wraps, as they prepare the displays for the media pr
Auto show worker Jorge Martinez details a General Motors 2014 Buick Regal vehicle under wraps, as they prepare the displays for the media pr

By Bernie Woodall and Laurence Frost

DETROIT (Reuters) - Automakers are upbeat about global auto sales this year despite fears of a slowdown in the United States, which generates big profits and where sales have surged 50 percent since the recession.

Europe is expected to begin bouncing back from its 20-year lows and China, the world's largest auto market, will likely continue to post double-digit gains, helped by an array of stimulus measures and robust demand in smaller inland cities. But slowing demand in the second-largest auto market, the United States, has some analysts worried incentives could rise and bit into profit margins.

"You could see some pressure on the quality of profits," Hans-Werner Kaas, senior partner at McKinsey's automotive practice, said of the U.S. market. He is worried automakers will lose the pricing discipline they have shown since the low-point of the recession in 2009, when General Motors Co and Chrysler Group filed for bankruptcy protection.

Worldwide, auto sales in 2014 are seen rising 3.4 percent, according to research firm IHS, while LMC Automotive sees an increase of 5 percent. Talk of sales and the challenges ahead will be a topic of conversation among executives at the Detroit auto show this week.

In the U.S. market, analysts expect sales to land somewhere between 16 million and 16.5 million, near pre-recessionary levels, which would mean an increase of as much as 5.8 percent. In the decade before the recession began in 2008, the U.S. market averaged 16.7 million new-vehicle sales annually.

While sales could rise as much as 5.8 percent in the United States this year, that would be down from 7.6 percent growth last year and about half the double-digit gains in the three prior years as the market rebounded from 2009's lows.

"We're out of the restructuring phase and out of the riding the normal recovery growth and I think sometime at the end of 2014, or somewhere in 2015 — the growth from the 10 plus million cars in the U.S. to somewhere between 16 and 17 will be gone," said Xavier Mosquet, senior partner and managing director at Boston Consulting Group.

As growth slows, there will be more pressure on all players in the U.S. market to lower prices and raise incentives to keep up sales, which could hit company profits.

Kaas said that if the growth plans of all manufacturers in the U.S. market came to pass, sales would top the forecasts of 16 million to 16.5 million, so some automakers will miss their targets. In an effort to make those marks, they will be under increased pressure to lure buyers with overly generous incentives.

Japanese automakers, who did not put much "cash on the hood" like their U.S. rivals before the recession, may hike incentives in order to compete, Kaas said. Thanks to the weaker yen, the Japanese companies have room to do that without suffering too much, but that could force others to respond.

ELEPHANT IN THE ROOM

Last month's profit warning by No. 2 U.S. automaker Ford Motor Co was due to those pricing pressures, Morgan Stanley analyst Adam Jonas said. Ford warned that its pre-tax profit for 2014 would be between $7 billion and $8 billion, lower than the projected $8.5 billion expected in 2013.

"We think Ford's 2014 profit warning is a watershed event for the industry in terms of increased competitive pressure," Jonas said in a research note. "Ford is placing a very high portion of the blame on obscure foreign currencies, engineering costs and launch timing, but we don' buy it. The elephant in the room is pricing."

For 2013, Europe's beleaguered auto market is set to post a decline close to its 2.8 percent contraction in the January-November period, rounding off a six-year slump that has led to plant closures by PSA Peugeot Citroen , Ford of Europe and GM's Opel.

Most industry executives and analysts expect a return in Europe to low single-digit growth in 2014, while cautioning that further losses are likely as pricing remains under pressure due to the region's glut of excess plant capacity.

"The European market remains dismal," Bernstein analyst Max Warburton said in a recent note. "Perhaps the next move is up, but we remain unenthusiastic. Most (manufacturers) will remain loss-making in the region."

Southern European markets such as Spain also have potential to bounce back more vigorously from their record lows, lifting mass-market brands like Volkswagen-owned SEAT and Renault's no-frills Dacia - as well as relative newcomers like Hyundai <005380.KS>.

In China, sales, including commercial vehicles, are forecast by LMC to grow 11 percent, the same increase seen by Automotive Foresight, based in Shanghai. IHS forecast a 9 percent increase.

That is welcome news as gains in emerging markets overall, like the United States, could slow in 2014, Barclays analyst Brian Johnson said.

"While we continue to see the emerging markets as driving global growth in the years ahead, they don't have the same luster as in years past," he said in a research note.

(Additional reporting by Samuel Shen and Norihiko Shirouzu in Beijing and Deepa Seetharaman in Detroit; Editing by Dan Grebler)

Comments