Double-dip Recession: Will It Wreck The Auto Industry?

There are positive sales signs that are flashing across the radar screen of the United States auto industry and auto loans landscape, but economists are wondering what could happen to the still-teetering auto industry should the current recession prove to be a “double-dip” or “w-shaped recovery” model. If that happens, will there be another government bailout? This very “what if” scenario, as reported by Reuters, is what is keeping industry experts up at night. Although a number of automakers like Ford are experiencing small gains in the first quarter of 2010, the specter of the 13 percent drop in global auto sales over the course of 2009 fails to cease hunting the auto industry.

Source for this article: Will A Double-dip Recession Wreck The Auto Industry

Auto industry has turned corner, says investors

Does the auto industry justify a bull run yet? As indicated by Reuters, this confidence springs from the assumption that demand will soon pick up considerably in the second half of 2010. Jeremy Anwyl, the Edmunds.com CEO, specified that the auto industry is still technically in a depression. Chrysler and GM still heavily rely on government assistance, while Ford is still struggling to pay down its non-bailout debt. Toyota is still struggling to remain above waters particularly because of the incentives designed to repair the damage to their bottom line from numerous safety recalls. If a less than favorable turn in auto sales should occur, these automakers would be placed in considerable peril.

2010 auto sales forecasted around 11.8 million in the U.S.

According to Reuters, that would be a marked improvement from last year’s 10.4 million sold, the lowest recorded total for the auto industry in almost three decades. A stable growth trajectory through 2011 would make it possible for GM and Chrysler to reduce their government ownership and go forward with an IPO, although auto sales must be solid for that to happen. Jack Nerad of Kelly Blue Book says that double-dipping into recessionary waters could “kill or break up” GM and Chrysler.

How much worse can it get?

Experts predict that auto sales could very much end up close to the 2009 figures instead of what would be needed for a sustained recovery. Many would feel the ripple effect throughout 2011, as automakers and their supply companies would still be fighting for air rather than joy-riding on a wave of recovery. About 13.8 million vehicles in the U.S. are predicted to be sold in 2011, but that number will be close to 11.3 if a double-dip into the recession occurs, according to economic forecast company IHS Global Insight. Automakers will be forced to lower their prices and offer even deeper incentives, that’s if the latter is the case. Fundamentally, there would be an inventory slashing with no actual recover. According to Reuters, Anwyl said, “Car companies would double down on incentives.” Such a sorry financial state would become the rule, rather than the exception.

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