A.T. Kearney's 13th Annual Auto Study Provides Forecasts for U.S. Auto Sales Through 2014

Annual Sales Could Reach 16 Million Units by 2011 on Pent-Up Demand

Under 'Stress Test' Modeling, Suppliers Could Need Up To $33.5 Billion Through 2012

CHICAGO, May 14 -- A new study by A.T. Kearney demonstrates that auto sales are driven by four macroeconomic factors and presents forecasts for new auto sales for each of the next 5 years. The study looks at three different scenarios for general economic growth and their implications on the light-vehicle market. Although the firm predicts U.S. auto sales will contract an additional 24 percent to 10 million in 2009, it forecasts that they will return to 16+ million units by 2012 under the most likely scenario.

Based on some 35 years of light-vehicle sales data, the study finds that while auto sales rates fall precipitously during recessionary periods, there exists a specific level of "pent-up demand" which helps sales spring back faster once a recovery begins. Based on the firm's current forecast, A.T. Kearney expects 8.4 million units of pent-up demand to materialize through 2015.

To derive its assumptions for future growth, the analysis smoothed fluctuating demand for vehicles over the 35-year period and applied 3 different economic scenarios to the baseline growth. In developing these scenarios, A.T. Kearney analyzed variables including GDP growth, consumer confidence, credit availability, affordability, licensed drivers, vehicle age and vehicle scrap rates reaching back to 1973.

Further, the study offers a strategic view of the U.S. auto industry, and suggests that there are currently too many generalist, or broad market OEMs, carrying too many nameplates to be sustainable. The number of nameplates offered for sale in the U.S. would need to shrink by one-third -- from the current 336 to 214 -- to maintain a sustainable margin in 2009, the study found. Even with a rebound in volumes by 2014, A.T. Kearney concludes full-line OEMs would still need 32 fewer nameplates than they are currently planning for in order to earn a sustainable margin.

Extrapolating the analysis to Tier 1 auto suppliers, the firm concluded that suppliers will require additional cash infusions ranging from $17 billion to $33.5 billion over the next two to four years, depending on the speed and extent of the recovery, to avoid bankruptcy. However, the suppliers are expected to return to profitability by 2011, in the most likely scenario, although the study concludes they will lose $23.7 billion in 2009.

"A disorderly wind-down of key suppliers could also potentially shut down other OEMs," said Dan Cheng, A.T. Kearney partner and leader of the study. "But recovery will ultimately come down to how quickly the economy improves, and I'm sure the government will be doing everything it can to help the industry avoid the worst case scenario outlined in our report."