Three top investors in the automotive industry painted a grim picture on Sunday for the sector in 2008, with one executive predicting a possible slump in U.S. sales to levels not seen in 15 years.
The weakest forecast is for a possible 9.4 percent decline. But all three -- Jerry York, an adviser to billionaire investor Kirk Kerkorian; financier Wilbur Ross; and Thomas Stallkamp, a former Chrysler president -- were more pessimistic than many in the battered industry.
"While I am very negative on the autos sector over the next 12 to 18 months, I'm just not sure how bad it could be," York, a former board member of General Motors Corp (GM.N) and chief financial officer of Chrysler, said at the Reuters Autos Summit in Detroit. "We all know housing is a debacle."
U.S. light auto sales could slip to 15.5 million or less next year, York said. That would be down from near 16 million this year, a drop of 3 percent to mark the second consecutive annual decline and the lowest tally since 1998.
Stallkamp, a partner at private equity firm Ripplewood Holdings, which owns several auto parts makers, said the market could slump to 14.5 million, the lowest level since 1993.
"I'd say it's somewhere between 14.5 (million) and 15 (million), somewhere in there and it's hard to tell," he said. "Today, I'm a little more towards 14.5 (million)."
Such a decline would be felt throughout the sector, CSM Worldwide auto analyst Michael Robinet said.
"That would certainly be one of the worst years on record given the gravity of the industry," he said.
U.S. auto sales fell almost 11 percent in 1991, when the economy was in recession.
Ross, an investor who specializes in restructuring troubled businesses and has assembled an auto parts empire through acquisitions, said the U.S. consumer was "pretty well tapped out" as he predicted auto sales would slip a few hundred thousand units from this year.
Most automakers have predicted U.S. auto sales next year in the range of just under 16 million to 15.5 million, with Japan's Nissan Motor Co Ltd (7201.T) at the low end.
However, the crumbling U.S. housing market is spooking consumers, the investors said.
"I hope I'm wrong on 14.5 (million) to 15 (million)," Stallkamp said. "But I think the mortgage issue is going to freak people out and that will hit pretty hard in '08."
Ross called it "a sort of poverty effect from house prices going down."
The U.S. automakers' market shares will suffer more than foreign rivals in such a weak market, Stallkamp said.
"You're going to see some continued retrenchment in construction and the building trades that will hit the Big Three particularly," he said.
The investors see the Big Three U.S. automakers cutting factory production instead of returning to overly generous discount deals such as GM's zero-percent financing offers, first rolled out after the September 11, 2001, attacks.
"I think you're going to see less discounting in general," Ross said. "Now that they have a little better control of the factories and now that the factories are a little more right sized."
None of the three predicted a recession for the U.S. economy in 2008, but York said "it feels like it's on the way."
Stallkamp, on the other hand, sees global credit markets stabilizing in the first half of 2008, with the holiday shopping season a key indicator. He sees U.S. auto sales coming back in 2009.
The U.S. automakers, already slashing jobs and factory production, will "have to get smaller faster" and push for more sales overseas in a weaker market, Stallkamp said.
"Maybe I'm too pessimistic on how low it's going to go," he said of the U.S. market. "Maybe I live in Michigan. This is a pretty crummy place to be right now."
