Will A Double-dip Recession Wreck The Auto Industry?

Despite some of the positive sales signs that have flashed across the radar screen of the United States auto industry and auto loans landscape lately, economists wonder what could happen to the still-teetering auto industry if the current recession proves 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. While some automakers like Ford have experienced small gains in Q1 2010, the specter of the 13 percent drop in global auto sales over the course of 2009 continues to haunt the auto industry.

Article Resource: Will A Double-dip Recession Wreck The Auto Industry

Investors say auto industry has changed tides

Does the auto industry justify a bull run yet? Reuters indicates this confidence rests upon the assumption that demand will pick up considerably in the second half of 2010. Jeremy Anwyl, CEO at Edmunds.com, points out that the auto industry is still technically in a depression. GM and Chrysler still rely heavily upon government assistance, while Ford is working hard 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. Each of these automakers could be placed in considerable peril if a less than favorable turn in auto sales should take place.

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

According to Reuters, that would be a marked improvement on the 10.4 million sold last year, which was the lowest recorded total for the auto industry in 27 years. A steady growth trajectory through 2011 would enable GM and Chrysler to reduce their government ownership and go forward with an IPO, although auto sales must be solid for that to occur. Jack Nerad of Kelly Blue Book says that double-dipping into recessionary waters could “kill or break up” GM and Chrysler.

How bad could it get?

Experts predict that auto sales could end up closely similar to the 2009 figures instead of what would be needed to sustain recovery. As automakers and their companies would still be fighting for air rather than riding a wave of recovery, the ripple effect would be felt throughout 2010. Economic forecast company IHS Global Insight predicts 13.8 million vehicles will be sold in the U.S. in 2011, but concedes that the number will be close to 11.3 if there is a double-dip into recession. If the latter is the case, automakers will be forced to lower their prices and offer even deeper incentives. Fundamentally, there would be an inventory slashing with no actual recover. Anwyl, according to Reuters, said, “Car companies would double down on incentives.” Rather than the exception, such a sorry financial state would become the rule.