US car makers feel housing, not recession - NADA

23 January 2008 23:23  [Source: ICIS news]

HOUSTON (ICIS news)--The bad economic news over the past week has not yet worsened the prospects for the US car industry, which are more in tune with the housing market than the wider economy, a senior economist said on Wednesday.

The sharp fall in equity markets will mainly affect the luxury car market, in which buyers are more likely to hold share portfolios, said Paul Taylor, chief economist for the National Automobile Dealers Association (NADA).

However, even if a recession were to occur, the key driver for the automobile sector would remain the housing market's impact on consumer behaviour, Taylor said.

"People are used to their house going up in value. They are not used to it going down," he said.  

The US vehicle industry is a key consumer of many chemical products, but its appetite has been slipping. Stagnating sales and rising costs have pushed the country's Big Three manufacturers into slashing production or closing down plants altogether in the last several years.

Japanese chemical company Kuraray said on Wednesday it has delayed its target date for the second-phase expansion of its existing 35,000 tonne/year ethylene vinyl alcohol (EVOH) resin unit in Texas to 2009, due to weak demand from car manufacturers.

NADA has forecast light-vehicle sales in 2008 will be down by around 600,000 units from 2007, to a range of 15.2m-15.8m.

"There could be further adjustments (in automobile production) if warranted," Taylor said.

The government's response to the worsening economic outlook, especially Tuesday's 0.75 percentage point cut in official US interest rates, did offer some hope to the vehicle industry, he said.

"Rate relief will be helpful," Taylor said.

A fiscal stimulus package now being worked on by the White House and Congress, which could pump $150bn (€102bn) into the economy, could also help auto sales at the margins, he said.

Analysts at Deutsche Bank Securities put the 2008 consensus forecast for US light vehicle production - as opposed to sales - at 14.4m units, down by 4% from 2007.

"Continued market share declines for the Big Three are predicted but may not be as bad as generally assumed," the analysts said in a commentary this week.

"We continue to believe that US automakers are on the right track with the strategies they are pursuing, and we believe that actions being taken should facilitate longer-term recoveries," they said.

($1.00 = €0.68)

By: Stephen Burns
+1 713 525 2653



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