Auto Industry News From Kiplinger

This is from the June 5 Kiplinger Letter…

Five or more years down the road… An altogether revamped U.S. auto industry, with at most two carmakers, far fewer parts makers, slimmer dealer networks and very different cars.

U.S. sales will hit 13.5 million by 2011, rising to 17.2 million vehicles by 2019… equal to the 2000 peak and almost double the trough of 9.5 million vehicle sales likely for this year.

Foreign firms will keep producing cars here to save on shipping costs and limit currency risks. They’ll soon hit parity or better with U.S.-owned firms and even surpass them slightly in the next decade. Just a couple of years ago, Detroit had a 2-1 edge.

Come 2019, U.S. firms will make nearly half of the 10 million vehicles manufactured on U.S. soil. That compares with 5.5 million made here this year. Imports, meanwhile, are sure to go up, from 4 million today to about 5.5 million in 2011. Look for 7.2 million imported vehicles in 2019.

Expect 250,000 more industry jobs to go by Dec. 2010, as the Chrysler and GM bankruptcies play out. Personal income lost will top $13 billion between now and the end of 2010. Job losses won’t be limited to the major auto centers in Mich., Ohio, Ill. and Mo., but will extend nationwide as dealers close and parts suppliers cut back operations. Hardest hit: Ala., Ark., Calif., Fla., Iowa, Ky., N.J., N.Y., N.C., Pa., Tenn., Texas and Va.

Southeastern states stand to gain as Toyota and Honda expand production along with other foreign based firms. Parts suppliers are also migrating southward.

As the industry adapts, the cars Americans drive will change dramatically. They’ll be more agile and more fun to drive, with Indy racer pickup and handling. Vehicles will weigh 500 pounds less, with better weight distribution. New materials are sure to inspire designers, who’ll offer head turners that fire up sales without relying on $5000 incentives that sap company profits.

Even more improvements, too, on safety… but a learning curve for drivers, especially baby boomers not used to autos that respond so quickly to a light touch.

Better gas mileage, of course, with hybrids starting to rule the highways. They’ll account for 50% of vehicle sales by 2015, up from 3% now. But making cars that are capable of getting 40 mpg means adding $1500 to their production cost.

Most likely winners over five years: Toyota, Honda, VW, Ford and maybe GM. Others won’t crumple overnight, but more consolidation and cost cutting are inevitable among Fiat, Subaru, Suzuki, BMW and a gaggle of Chinese and Indian competitors.

Chrysler is in the weakest position of U.S. firms… no new models, no more federal aid. Odds favor a GM-Ford merger or partnership by 2020 so they can compete.