PHOENIX - Pent-up demand, reduced capacity, and shifts in the marketplace will "perfectly align" for automotive OEMs within the next five years, industry analyst and host of television's "Autoline Detroit" John McElroy told attendees at the Automotive Fleet & Leasing Association's (AFLA) 41st annual conference yesterday.
Automakers "will need to strain to meet demand," eliminating the need for buyer incentives and leading to bigger sales and profits, McElroy predicted. "In about three years," Ford will experience record profits, followed by GM and Chrysler, he suggested.
McElroy's presentation, "The Golden Years in the U.S. Auto Market, 2010-2015," kicked off the first full day sessions at the AFLA conference, held at the Arizona Biltmore.
While recognizing the deeply felt and traumatic impact of GM and Chrysler's Chapter 11 filings, McElroy said the financial upheaval benefited both OEMs and, to some extent, Ford, which underwent similar turmoil, albeit without Chapter 11 proceedings. According to McElroy, these benefits include:
- Debt levels and labor costs slashed.
- Work rules "fixed."
- Job banks ended.
- Excess capacity eliminated.
- Break-even points reached at 10 million vehicle sales, seasonally adjusted annual rate (SAAR).
Several factors have combined to create "long-term shifts" in the U.S. auto market, said McElroy. These factors include environmental legislation forcing a move away from trucks and SUVs. However, McElroy questioned whether Americans will buy more small cars.
Additionally, he forecasted new-vehicle prices will rise as much as $5,000 per unit to offset OEM profit loss from fewer truck sales and the cost of increased technology to meet government mandates. McElroy believes the auto market will "settle" at 11 million SAAR
The used car market will experience a "boom time" in subsequent years as the inventory of used vehicles declines, due to significant drops in dealer consignment volume due to fewer trade-ins. Other factors include decrease daily rental and commercial fleet sales, said McElroy. A "red-hot used car market" will witness prices under pressure to rise.
McElroy believes the key alternative-fuel technology to watch are electric and plug-in electric vehicles. In this area, he said, all OEMs, domestic and foreign-based "are starting from scratch."
Diesel fuel won't catch on in the U.S. because "environmentalists don't like diesel, even clean diesel. They're into electric vehicles," said McElroy. The one factor that may change that scenario, he believes, is the growing interest in algae-based fuel. Developers in this area are looking at combining algae fuel products with diesel.