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U.S. Sales Shouldn’t Be Hurt By Rough Economic Weather

Credit Policy The Key To Healthy Sales

The U.S. auto market is unlikely to react adversely to economic stagnation because credit conditions are not expected to tighten, Deutsche Bank said in a report.

Deutsche Bank was responding to the stock market fallout following the reaction to the protracted U.S. negotiations on the borrowing limit, and unimpressive economic growth numbers.

“We must acknowledge that U.S. economic growth has slowed since late 2010, and the risks of another recession or at least very modest growth in the near-term have increased. We continue to believe that an Auto industry recession, resulting in significant volume contraction is relatively unlikely. Such downturns typically follow significant credit tightening, or an extended period of above trend demand, which almost certainly is not the case now,” said Deutsche Bank.

Deutsche Bank said underlying demand remains at around 13 million for the year, and this level might remain for an extended period. Plus factors for demand are the lagging proportion of GDP spent on autos, which was at 3.1 per cent in the first quarter and 2.85 per cent in the second. This is below the 20 year trend of 3.3 per cent of GDP.

“We’d also note that the trajectory of U.S. auto sales remains far below any other post-recession period,” the bank said in a report published after the stock market debacle in early August.

Current stock market trends point to investors already pricing in a much more negative scenario.

“The market underestimates the extent to which U.S. automakers and suppliers have lowered their costs structures, such that they should be able to achieve profitability and positive cash flow through a range of downside scenarios,” the bank said.

Neil Winton – August 15, 2011

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