Fitch Ratings Analyst Predicts Small Recovery Of Auto Sales

DETROIT November 23, 2009; Tom Krisher writing for the AP reported that the U.S. auto industry will recover only a little next year, weighed down by high unemployment and other troubles that will continue to limit economic growth, a top industry analyst said Monday.

Fitch Ratings analyst Mark Oline predicted that sales will rise to 11.1 million cars and trucks next year, a 7.8 percent increase over the 10.3 million he expects for 2009.

Unemployment, limited consumer discretionary spending, lost wealth from lower housing values and a higher consumer savings rate all will combine to limit auto sales next year, Oline wrote in a note to investors.

And even if sales rise to 11.1 million, many automakers and parts suppliers will continue to spend more cash than they take in, Oline said.

Worse yet, the risk of a double-dip recession or a spike in gas prices remains present and could further limit any recovery, he wrote.

Automakers and parts makers, however, are seeing improved liquidity due to expanded access to external debt and equity markets as well as government aid.

"This is expected to support the industry during a protracted period of relatively modest sales growth," Oline wrote.

Yet General Motors Co. and Chrysler Group LLC, both of which exited bankruptcy protection this year and are receiving billions in government aid, will have trouble selling shares to the public in 2010 if the market recovery is slow, Oline said in an interview.

GM has received about $52 billion in U.S. aid, while Chrysler has received roughly $15 billion. GM says it will begin repaying $6.7 billion in U.S. loans in December, with at least a portion of the rest repaid when the government sells its 61 percent stake in the company.

GM is preparing to make a public stock offering late next year, and Chrysler said it would do so sometime from 2011 to 2014.

Both companies have to show they can be viable without government aid, and that includes posting a profit as well as showing market acceptance of their products that will be difficult in a slow market, Oline said.

"It doesn't look like they would be in a position to generate strong enough cash flow to start improving the balance sheet and convince the markets that they are a viable independent entity" next year, he said.

GM's ability to sell shares publicly depends on sales recovering to a level that's better than the 11.1 million Fitch is predicting, Oline said.

It also is dependent on Chinese and European sales growth, he said.

"If we're at 11.1 (million) or less, their operations will still be relatively weak in terms of their operating performance," he said.