Auto industry primed for a comeback

February 7, 2011 4:40:10 PM PST
Automakers and their dealers have had a rough three years -- dealerships closed, car makers needed government bailouts. But now they are no longer grimacing.

You can see it in the new sign over Normandin Chrysler in San Jose; money being spent because dealers see auto sales on the comeback. Analysts are projecting sales could hit 13 million vehicles this year. During the recession, sales plunged to nine million.

The CEO of Chrysler, Sergio Marchionne, was in San Francisco Friday to talk to 17,000 auto dealers and the vendors who supply them. He is hoping the turnaround has traction.

"We need to walk before we start running. We cannot believe our own press. I think that we learned the hard way on a number of things," said Marchionne. "I don't think we should be repeating mistakes of the past. I know Chrysler's not repeating them and I'm sure that my other friends in Detroit are as rigorous and disciplined as we are."

Marchionne announced Chrysler will invest $500 million over the next five years to support the dealers. That boosted optimism.

"You can feel it in the attitude," said Craig Monaghan, CFO of Asbury Automotive Group, whose group operates 100 showrooms. "There's more excitement, we've seen better product, we're seeing the health of the domestic manufacturers. It's an exciting place to be today."

The National Automobile Dealers Association is setting up a large exhibit floor at Moscone Center. Its chairman singles out additional reasons for optimism.

"The auto loans are very low right now. The average interest rate is about 6 percent," said NADA chairman Ed Tonkin. "And you have a fleet of cars that's actually 10 years old -- the average age of the fleet is 10 years old -- so you do have some pent-up demand."

A potential snag could be rising fuel prices and the supply of hybrid or electric cars. John Humphrey at the auto industry research firm J.D. Power claims Detroit can survive that.

"The fundamentals of the recovery are strong enough to weather that," said Humphrey. "It might slow the pace a bit, but I think the underlying fundamentals are there."

The recession-fueled meltdown of automakers did thin out dealer ranks -- 2,000 of them disappeared. Chrysler says 80 percent of its remaining dealers are profitable. That is the highest figure in over a decade.

While the road ahead isn't guaranteed to be smooth, there are tens of thousands of people who are counting on the comeback of the auto industry to help them as well.