A Guide To The Auto Industry’s 2010 Winners And Losers

Jerome York is a nasty piece of work and a financial genius who has been successful as a lieutenant to billionaire raider Kirk Kerkorian. York’s curriculum vita as a financial analyst is impeccable. He has been CFO of Chrysler and IBM (NYSE:GM) and a board member of GM, when it still had a real board, and Apple (NASDAQ:AAPL)

York was at the center of Kerkorian’s efforts to sell-off Chrysler and GM, or at least get new managements for them both.  He knows the global auto industry as well as anyone in the world who does not work in it full time, and probably better than most of those who do.

York recently told a Reuters gathering that 2010 domestic car sales would be flat compared to this year, which means only 10 million to 10.5 million cars and light trucks will be sold in the US. The head of Group 1 Automotive (NYSE:GPI) who spoke at the same event also expects no improvement in demand. Most analysts are more optimistic and believe sales will move up over 11 million units.

There is not much to support any case for an improvement in auto sales in America next year. “Cash for clunkers” and the GM “60 Day Guarantee” programs are pulling 2010 sales into 2009. Unemployment will be higher in 2010, not lower. There is absolutely no sign that consumer credit will be easier to come by next year. It would not be surprising if domestic sales drop in 2010 compared to this year.

Some car companies need an improvement in overall American sales next year because their market shares are falling and they cannot contend with both that and a moribund national market. Chrysler is at the head of most experts’ lists, and it should be. It holds 7.8% of the domestic market and its sales for the rest of this year are likely to be down by a third compared with 2008. Chrysler could well go into 2010 with a 7% market share. It still has too many people and a cost base that is too high to support only 700,000 car sales. Fiat says it will not be able to give Chrysler much help with new models until 2012. Chrysler may be facing two disastrous years. It has recently made moves to cut its workforce further, but that may not buy it enough time for Fiat to ride to its rescue.

While Chrysler has lost a great deal of its market share, Hyundai has gained nearly as much. The South Korean company’s parent firm is one of the largest corporations in the world. It is likely to continue to invest in new models to bring into the US and it will probably outsell Chrysler in the domestic market in 2010. It stands to be the largest net winner in the auto industry race in America next year.

The industry’s impression is that Ford (NYSE:F) will be the biggest 2010 winner among very large car companies which rely heavily on the US market, and that is almost certainly true. Ford’s market share is 15.5% now and could be 16% next year. All of the evidence points to Ford being able to do very well if it can sell 1.6 million vehicles in the US. The No.2 American car company did not get the UAW contract that it wanted, but it should still be solidly profitable in 2010.

Honda (NYSE:HMC) and Toyota (NYSE:TM) are expected to hold their own next year,  a defeat which they are not likely to acknowledge. Their market shares in America have been rising fairly steadily for three decades. Honda is stuck at about 10.4% and Toyota at 17.5%. GM has enough money in the bank to continue to be a relatively difficult competitor for the two Japanese car companies. Ford is doing very well, and Hyundai has the role that Toyota and Honda once had. It is the low price, high quality brand.

GM’s chances of doing well financially next year are probably poor. It has cut costs, but not enough to do very well in a stagnant US market. Its sales overseas, especially in China, may offset that problem, but GM’s 21% of the market is going to be under pressure from Ford, which has a newer line of cars, and Toyota, which cannot afford to see its progress in the US stall entirely.

Among the really viable companies competing in the American market, the biggest loser next year is likely to be Nissan. It has about 7.5% of the market which puts it in a struggle among Hyundai and Chrysler for last place in market share among the contenders for domestic sales. Its luxury brand, Infiniti, has to compete with Mercedes and BMW along with Lexus, Acura, Cadillac, and Lincoln. Nissan’s product line is not as broad as Honda’s or even Chrysler’s. Nissan has a range of vehicles across the sedan, SUV, van, pick-up, and sports coupe spectrums, but none of its cars is the leading vehicle in sales within it class.

Nissan and Chrysler may be the most visible losers in the domestic market in 2010, but, once again and for every year since its Beetle stopped selling well in American, VW is an invisible loser. It is among the half dozen largest car companies in the world, but its share in the US market is under 1%. It let the market go years ago, and has not had the sense to try to buy back in through a partnership like the one Fiat has created with Chrysler.

Flat domestic sales mean that two or three car companies are going to be squeezed and squeezed badly next year. Car company profits in the US have been built on a growing market for a long time and the market may not get back to growing soon. Jerome York’s vision of the future of the car industry is probably right which means that some of the companies in the business may not make it at all.

Douglas A. McIntyre