But Watch Out For The Return Of Over-Supply, Pricing Pressure.
New Capacity Though Is More Efficient, Flexible.
Europe’s prospects may be murky, but the U.S. market is accelerating away with experts leapfrogging over each other as they raise sales estimates.
Ford talked about car sales reaching 17 million again, but Morgan Stanley warned that as car makers raised output to meet burgeoning demand, there was a danger that the old bugbear of over-supply leading to the need to slash prices and adding discounts to move the unsold metal.
Moody’s Investors Service raised its forecast to 15.75 million for light vehicle sales in 2013 from a previous estimate of 15.25 million, which would be an increase of 8.7 per cent over 2012.
“For 2014 we anticipate a further increase of 2.9 per cent to 16.2 million, which demonstrates a remarkable recovery from the cyclical trough in 2009 when only 10.4 million units were registered,” Moody’s said.
Deutsche Bank raised its estimates for 2013 and 2014 to 15.6 million and 16.1 million. It had previously predicted 15.35 million and 15.6 million. It didn’t see any pricing problems in the short term but was wary of the impact of the weaker yen, and possible rising U.S. interest rates.
Toyota USA said it expects sales to remain in the high-15 million to mid-16 million for most the decade, but said sales will start to plateau around a rate of 16 million a year.
Ford was even more optimistic, although it wasn’t specific about the time-frame.
“The trend we see is the upward curve increasing to 17 million vehicles in the next few years,” Ford CEO Alan Mulally told the Financial Times.
“It’s sustainable in the near term thanks to the pent-up demand, which is a real turbo-boost for the industry,” Mullay said, adding that a long-term sales trend would be between 15 million and 17 million.
“The average age of a car in the U.S. is 11 years right now,” he said.
The average age of a car in Europe is 8.2 years, according to Alix Partners.
Investment banker Morgan Stanley matched the Ford prediction of 17 million also without pointing to a specific time, but it warned of dangers ahead in a report entitled “The Dark Side to the Recovery”.
Morgan Stanley said North America is undergoing the fastest expansion of capacity since 1950.
“As the V-shaped recovery in U.S. autos continues, it’s little wonder manufacturers have been redoubling efforts to attract the incremental U.S. buyers trying to replace their 11-year old clunkers. The dark side of the story has been the steady addition to North American capacity by every key player. As much as new capacity is required to liberate pent-up demand, it is also an enemy of pricing,” said Morgan Stanley analyst Adam Jonas.
Increased competition from Japanese manufacturers emboldened by a weaker yen will also hit prices. With the addition of 3.5 million units of capacity from all the players, the industry’s ability to produce vehicles is now growing faster than demand, Jonas said.
Room to breathe
In the plus column though, Jonas said much of this new capacity is of lower cost and more flexible. New workers are often being paid much less than in the days before General Motors’ bankruptcy.
“Capacity additions allow manufacturers to “breathe” with the ebbs and flows of the economic cycle. The manufacturers want to make more cars, but they want the ability to turn off the lights when the music stops,” Jonas said.