CIBC - US Automakers Likely To Close Half Of All Plants, Given Demand Picture

[hatrack]

CIBC (CM: TSX; NYSE) - U.S. auto sales, which are already at a 34-year low, will likely drop another 30-40 per cent and may never recover to previous levels, finds a new report from CIBC World Markets.

The report projects that American consumers will only buy about 8-9 million vehicles a year over the next five years, roughly half of what we've seen in the last half-decade. As a result, it also projects roughly half of the U.S.'s 51 light vehicle plants will be permanently closed in the coming years. This will see the loss of another 200,000 jobs in the sector, on top of the 560,000 jobs already lost this decade.

"Detroit's biggest problem isn't that it's producing the wrong type of vehicles but rather, that it's producing too many vehicles-far too many," says Jeff Rubin, chief economist at CIBC World Markets. "Just as two million housing starts proved to be a bubble, so was the average 16 million unit auto sales of the last five years. That was a product of a world of cheap oil and cheap credit, neither of which are likely to figure in the future.

"Easy credit is already gone. The credit bubble wasn't just about sub-prime mortgages. It was just as much about car sales. Some two-thirds of vehicle sales in America over the last decade were debt financed. The leasing market has all but dried up and the securitization market for car loans isn't far behind. If you buy a car these days, try paying cash, which of course isn't superabundant, particularly for the over three-and-a-half million Americans who have already lost their jobs." The report finds that there will be 25 million fewer cars on the road in the U.S. in five years. With the vast majority of sales purchased on credit, buying a new vehicle simply won't be an option for many Americans as they struggle to service record household debt levels and find financing increasingly difficult to access. This alone will take 15 million Americans to the exit lanes in the next half-decade.

EDIT

http://www.tradingmarkets.com/.site/news/Stock%20News/2201881/

[phantom power]

1. Any serious economic recovery plan...

is going to have to be organized in terms of finding new businesses to employ former auto workers. Get them employed making something besides automobiles.

[kestrel91316]

2. Windmills and solar thermal collectors come to mind........

And perhaps bicycles.

[phantom power]

3. and railroads and rollingstock and engines

and electric grid upgrades. I bet there are others. Trolleys, light rail, subways, buses...

I'm trying to think of businesses that would have supply chains similar to the auto industry, but I predict people will be willing to go as far outside the box as necessary, if it means putting food on their family.

[kestrel91316]

4. Those, too. Absolutely. They should put US in charge.

[pscot]

6. There are hundreds of thousands

of idle railroad cars crammed onto sidings all over the country. It will be a while before we need any new ones. http://online.wsj.com/article/SB123535033769344811.html

[phantom power]

7. Interesting. Maybe we'll need them for all the hobos.

[excess_3]

5. welcome news, fewer SUVs on the road .n/t