U.S. Auto Recovery May Continue With 12.9 Million Sales in 2011

U.S. automobile sales may rise to 12.9 million vehicles in 2011, the second straight year of gains, showing investors that the market’s recovery is legitimate.

Total deliveries will rise 11 percent from 2010, according to the average of 17 analysts’ estimates compiled by Bloomberg. Sales rebounded to 11.6 million vehicles last year from a 27-year low in 2009, Autodata Corp. said yesterday.

The gain would provide additional revenue for an industry that returned to profitability in 2010, led by Ford (F) Motor Co.’s $6.37 billion of earnings through three quarters. Still, the analysts’ forecast is for the third-lowest annual total since 1992. It would be 23 percent less than the average 16.8 million annual sales rate before the recession.

“There are some serious positives out there, but some buyers have still been forced out of the market due to credit issues, or they’re paying down debt and unwilling to originate a new car loan,” said Dan Montague, an analyst at the Autofacts forecasting unit of PricewaterhouseCoopers LLP, which forecasts 12.5 million deliveries this year. “It’s going to be methodical, stair-step kind of growth.”

General Motors Co. (GM), Ford and Chrysler Group LLC reported U.S. sales gains that topped analysts’ estimates in December, pushing the industry’s annual rate to 12.6 million for the month, according to Woodcliff Lake, New Jersey-based Autodata. Deliveries ran at a 12.3 million unit pace the two prior months.

GM, Ford Outlook

Sales this year may be as much as 13.5 million when including medium- and heavy-duty trucks, executives at GM and Ford, the two largest U.S. automakers, said on conference calls yesterday. Ford raised the top end of its estimate from 13 million, and Ellen Hughes-Cromwick, the Dearborn, Michigan-based company’s chief economist, said job gains are likely to accelerate in the months ahead.

“Credit availability in the auto sector will continue to improve in 2011 on the back of the improving job market and improving credit force,” said Don Johnson, Detroit-based GM’s vice president of U.S. sales operations.

The U.S. economic outlook is improving and consumer credit “exhibited continued signs of stabilization,” Federal Reserve policymakers said in minutes of its Dec. 14 policy meeting, released yesterday. Unemployment above 9 percent and falling home prices will moderate the recovery in the world’s second-largest auto market, said Ed Kim, an analyst at AutoPacific Inc. in Tustin, California.

“Housing and unemployment aren’t going to turn around overnight,” said Kim, whose estimate for 12.4 million sales tied for the lowest among analysts surveyed. “Those factors are severe long-term challenges that will prevent the industry from turning around as quickly as some are saying.”

Estimate Range

The sales estimates compiled by Bloomberg range from as high as 14 million predicted by Morgan Stanley, to 12.4 million seen by analysts at Soleil Securities Corp. and AutoPacific.

Sales will rise to 14 million this year in a “V-shaped” recovery, Adam Jonas, a Morgan Stanley analyst, wrote in a Dec. 28 report that initiated coverage of GM with a recommendation that investors buy the shares.

The recovery will be driven by pent-up demand, wrote Jonas, who is based in New York. The average car on the road is more than 10 years old and sales have run below the auto scrappage rate for two years, he said.

“What we expect if things stay on the course we’re on right now is fairly gradual growth,” David Cole, chairman emeritus of the Center for Automotive Research, said yesterday in a Bloomberg Television interview. “Some people think if we see an uptick in consumer optimism we could pass 14 million pretty quickly. That’s probably wishful thinking right now.”

GM IPO

Rebounding sales in its home market helped GM raise more than $20 billion in common and preferred shares in its initial public offering in November.

GM’s cost structure was reduced in its bankruptcy in 2009, allowing the company to earn $1.3 billion for every 1 million units of additional sales, Rod Lache, an analyst at Deutsche Bank AG in New York, wrote in a note dated yesterday.

“The industry has to keep its eye on the prize and know slow, steady growth is the way to go,” said Frank Ingarra, co-portfolio manager at Novato, California-based Hennessy Advisors Inc., which oversees $900 million, including shares of auto-parts supplier BorgWarner Inc. (BWA) “Hopefully, they keep their diligence and don’t start to expand, get their costs too high, or raise incentives and have issues again.”

Ford overtook Toyota Motor Corp. (7203) for the No. 2 spot in U.S. sales last year, reclaiming the place it once held for 76 years. Toyota, hurt by more than 8 million recalls related to unintended acceleration, last trailed Ford in 2006. Ford shares closed at $17.38 yesterday in New York trading, the highest since 2002.

GM, Ford Shares

GM, which Morgan Stanley said may rise to $50 in the next year, closed yesterday at $37.90, up 15 percent from its IPO.

Toyota enters 2011 as the only major automaker who reported monthly and annual sales declines yesterday. The Toyota City, Japan-based automaker has said it will sell 11 new or refreshed models this year, including the Corolla small car.

“Like all automakers, Toyota will benefit from a continued cyclical recovery, but you won’t see a jump from them until they have a redesigned Camry or Corolla,” David Whiston, an auto analyst at Morningstar Inc. in Chicago, said in a telephone interview.

The following table shows estimates for 2011 light-vehicle sales in the U.S. Forecasts are in millions of vehicles.



Brian Johnson            13        David Whiston       13
(Barclays Capital)                 (Morningstar)
Himanshu Patel           13        Adam Jonas          14
(JPMorgan)                         (Morgan Stanley)
Jesse Toprak             12.7      Itay Michaeli       13.1
(TrueCar.com)                      (Citigroup)
Joseph Barker            13.1      Efraim Levy         13
(IHS Automotive)                   (Standard & Poor’s)
Michelle Krebs           12.9      Dan Montague        12.5
(Edmunds.com)                      (PwC’s Autofacts)
Jeff Schuster            12.8      Michael Ward        12.4
(J.D. Power)                       (Soleil Securities)
Christopher J. Ceraso    12.8      Ed Kim              12.4
(Credit Suisse)                    (AutoPacific)
Patrick Archambault      13        Lonnie Miller       12.9
(Goldman Sachs)                    (R.L. Polk)
Rod Lache                12.5
(Deutsche Bank)


Average                  12.9

To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net.

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