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Who's Down on the U.S. Auto Industry? Uh -- It's U.S. Auto Executives

Booz & Company, the consulting firm, just released the results of a survey of 200 auto industry executives, from which two things leap out. First, everybody expects to pick up market share, but everybody is also worried that the business still hasn't learned its lesson after the 2009 crash. Second, the only way the auto market is going to fully recover is via more consumer credit.

When you wish upon a credit revival
Let's ponder that second one first. Signs are good that the auto industry is going to get what it wants -- even at the expense of other sectors of the economy. Here's some reporting from AP earlier this month:

U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases.

Borrowing increased by $7.6 billion, or 3.8 percent, in February, the Federal Reserve said Thursday. It was the fifth consecutive monthly gain.

All of the strength in February came in the category that includes car loans and student loans. That increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent.

This is good news indeed for auto execs. It's an early sign that consumers are either getting their priorities straight -- buying a car on credit is better than breaking out the plastic to purchase more disposable goods -- or just plain sick of the car they've been driving since before the financial crisis. If they've been driving at all.

But what about the structural weakness?
Of the executives Booz surveyed, many were concerned that the U.S. auto industry was doomed to repeat the mistakes of its past and a significant portion -- about 30 percent -- expect one of the big carmakers to go under in the next two years. (For those of you playing at home, that would presumably be Chrysler, although apparently the respondents didn't have to name a company.)

They may actually see their expectation realized, but perhaps not in the way they imagine. The surveyed execs cited "increasing competition as their main challenge going forward." Losing one car company by 2015 would be one way to overcome this in the U.S. But so would weakness among some of the key players.

The ripple effects of the Japan quake
The disaster in Japan has seriously disrupted that country's carmakers. It could be months before Toyota, Honda et al. are back up to full strength at home and abroad. Collective Japanese market weakness may not amount to a loss of capacity that's commensurate with an entire carmaker going down. But it could reduce competition in the aggregate.

Perhaps more critically, the survey respondents don't see the U.S. yearly auto market recovering to 16 million vehicles by 2015. Consensus is more like 14.5 million. This contrasts with what auto analysts have predicted.

The conservative outlook is tough to understand. The U.S. market this year could be 13 million, and unless unemployment becomes truly intractable or people hang on to their vehicles for absurd lengths of time, and uptick of just a million-and-a-half is more than plausible by 2013.

Post-traumatic stress?
Of course, what the Booz survey could be telling us is that the U.S. auto industry is completely shell-shocked. In truth, much of the downturn that we locate in 2008-09 really took hold in the mid-2000s. General Motors (GM), for example, quit making money in 2005.

More than half a decade of struggle is apt to make an industry pessimistic. But in this case, the negativity is misplaced.


Photo: GM Media
UPDATE: It was pointed out to me that Booz & Company created the survey. Booz & Co. is the original consulting business, while Booz Allen Hamilton is a spin-off that handles the firm's former public-sector business. Apologies!
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