Billionaire investor Wilbur Ross said on Wednesday that the U.S. economy is nowhere near a full recovery and forecast 2010 as a year of moderate growth for the nation's automotive industry sales.
Ross also said he believed that automakers General Motors Co
I don't think we are in anything like a full recovery, Ross said in an interview with Reuters Insider on the sidelines of the Automotive News World Congress. Consumer balance sheets still need to be repaired.
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Ross, chairman of the International Automotive Components Group auto interiors supplier, said he expects U.S. sales to grow by up to 1.5 million units in 2010 from the roughly 10.4 million vehicles that were sold last year.
Those sales would still be below the rate at which old vehicles are consigned to the scrap heap, which Ross believes is in the 12.5 million to 13.2 million unit range. He believes that U.S. sales of 13.5 million is achievable in 2011.
In my book, 2011 will be the big year for cars, not 2010, Ross said. I view that as kind of a transition from the depths of where we were to what we hope will be something like the new normal.
A normal rate of annual U.S. auto sales should be in the 13.5 million to 14 million unit range, Ross said.
The U.S. auto industry has been mired in a four-year downturn that saw sales plummet by more than 20 percent in 2009 to about 10.4 million units. Most industry executives and analysts expect sales to grow to about 11.5 million in 2010.
The downturn has stressed the auto parts supply base, including IAC, which was not profitable in 2009, but which expects to be profitable in 2010, Ross said. IAC renegotiated labor contracts, cut management salaries and made other reductions during the downturn.
However, the market weakness has also provided opportunities for acquisitions and to pick up business from failed suppliers.
Ross said the interiors supplier remained in an acquisition mode and was currently in discussions on two small deals both domestically and internationally. It also took over business from failed suppliers a dozen times in the past 18 months and expects more of that as the sector stresses continue, he said.
Ross, known for consolidation efforts in the steel and coal sectors as well as the auto parts industry, said he was very interested in the drive toward vehicle electrification and already had an investment that would play toward that growth.
In a very bizarre way, one way to play the electric car without having to guess whose battery is going to win, whose configuration, is to buy power sources because there is going to be an increasing demand for electricity, he said in reference to his coal business.
Ross has shown no interest in participating in a public offering of GM stock, which the automaker could make later in 2010 or in 2011. But he said Chrysler, which is under management control of Italy's Fiat SpA
They certainly have fixed the balance sheet, they have made better arrangements with labor, the fringe benefits and all that. The question now is simply can they make cars that are competitive, cars that people really want to drive? That's up to the managers, Ross said.
For suppliers, production increases would be welcome, but not end their stresses due to overcapacity overall at automakers and parts makers, he said. Commodity prices also are a concern this year.
An unfortunate corollary of the economy perhaps getting a bit better is there is getting to be quite a little bit of upward pressure on commodity prices, Ross said.
For IAC, the supplier needs plastics, which are affected by the price of oil -- which will probably rise this year by $25 a barrel or so, he said.
Ross also said the U.S. economy could use a new stimulus program, possibly a more carefully constructed cash for clunkers program like the one that boosted U.S. auto sales in July and August.
A lot of the old stimulus is going to be running out and I don't think the consumer has been rehabilitated yet, he said. I think that is an '11 or maybe '12 item, not a 2010.
U.S. consumer leverage would have to come down and incomes move back up to have a full U.S. economic recovery, he said.
(Reporting by David Bailey, editing by Matthew Lewis)