Study Says U.S. Car Sales to Return to Pre-recession Level

DETROIT — U.S. auto sales should reach 11.7 million new vehicles this year and may return to historic levels of near 17 million over the next two years, fueling more profitability for the more cost-efficient car companies and auto-parts makers, according to a new study reported in The Wall Street Journal. The projection, released by A.T. Kearney Inc., suggests sales could reach 16.8 million in 2012 followed by 17.8 million in 2013 and 18.6 million in 2014 under an "optimistic" forecast. In April, automakers sold vehicles at an annualized pace of 11.2 million. A.T. Kearney's "base-line" forecast calls for 16.1 million sales in 2012, followed by 16.5 million in 2013 and 17.5 million in 2014. It's "pessimistic" projection suggests 12.9 million sales in 2012 followed two consecutive years of 14.6 million. A.T. Kearney's bullish outlook stands in stark contrast to most forecasts, which don't expect U.S. car sales to cross the 16-million level until 2013. George Magliano, director of automotive research for HIS Global Insight, said last month it will be "quite some time" before the market returns to more normal levels. The Center for Automotive Research, in Dearborn, Mich., expects auto sales to hit 14.9 million in 2012. Another car-data firm, Edmunds.com, forecasts 11.5 million sales this year and 14.7 million in 2012. Daniel Cheng, an A.T. Kearney partner, said the firm's outlook is based on pent-up demand coming from consumers who have owned their vehicles an average of 10 years. "Cars last longer but not that long and they have to be replaced," Cheng said. "We don't see any transportation alternatives in the near future so people will have to buy new cars." Statistics also point to a strong correlation between an increase in loan approvals and auto sales, A.T. Kearney said. In the mid-1980s the loan-approval rate topped out at about 90% and U.S. car sales climbed. The current loan-approval rate, about 75 percent, is positioned to climb as car makers and eventually banks return to providing loans to people with weaker credit ratings, the firm said. Automakers and parts suppliers used most of 2008 and 2009 to trim costs by shutting plants, laying off workers and shrinking their break-even points. Many companies, especially suppliers, can now post profits even if annual sales in the U.S. are below 11 million vehicles. Economic uncertainty, however, remains. A collapse of the euro, new terror threats or a trade war all could slow the car-sales recovery, Cheng said.