How Many Car Companies Survive The Long Haul?

Once the reorganizations of GM and Chrysler are done, the companies comfortably back producing automobiles and all apparently right with the world, we may then have to get down to the real business of rationalizing the U.S. auto industry.

A new report from A.T. Kearney featured in the WSJ Real Time Economics blog suggests that we probably need only three major auto companies. Right now they count seven — Ford (F), GM (GM), Chrysler, Toyota (TM), Honda (HMC), Nissan (NSANY)and Hyundai (HYMLF.PK).

Among the other things mentioned in the article are:

» Vehicle sales are expected to be around 10 million this year but they see pent up demand pushing the annual rate back up to 16 million by 2012.

» Suppliers are burning through cash and should exhaust their cushions by year end. Kearney predicts they will need cash infusions between $17 billion and $33 billion from 2010 to 2012.

» If the market rationalizes down to three major manufacturers they would expect them to control 70% to 90% of the market. Those most at risk now are the companies that control 5% to 10% of the market.

I’ve left a link at the bottom to Kearney’s site at which these numbers are presented graphically. I couldn’t find any detail on the actual study so I have no way of validating their methodology. The numbers might be off but I don’t necessarily see any reason to dispute their overall conclusions. The concentration of sales in a few dominant players is consistent with the evolution of other industries.

I will say that I found the information about the suppliers both surprising and a bit troubling. I suppose if it’s true we shouldn’t be surprised that we haven’t heard a peep out of the auto task force about this, and I’m relatively certain they much have some sort of handle on the issue. Since most of the suppliers are UAW employers it’s probably pretty much baked in the cake that these guys will be next in line for your money.

I guess the big question is how much money we spend to make sure out car companies are the survivors of the shake out.

More: here (link to Kearney site).

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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