Q&A: Mike Wall, Analyst at IHS Automotive, Grand Rapids

Automotive analyst Mike Wall at IHS Automotive thinks the industry will reach an inflection point in 2013 where it will hit steady growth driven by new launches, a recovering housing market and customers returning to the market. IHS projects North American light vehicle production to reach 15.6 million units this year, but Wall believes the market could support even higher numbers. Discussions over the fiscal cliff might have delayed some purchases, but he says there?s no permanent damage done. However, suppliers and automakers are watching the European situation very closely. To get more insight into the ever-important sector in West Michigan, MiBiz spoke with Wall about what he sees ahead in the upcoming year for the automotive industry.

Where is the industry in terms of a recovery?

We?re not quite at pre-crash levels in terms of volume, but we are at a production basis. There?s a few reasons for that. We?re building more cars here that were formerly imported, and we?re exporting more cars as well. That?s giving us some production tailwind. But this year, we?re exceeding 2007 (production) volumes.

What would help the industry recover even more?

(Residential construction) is something to drive the market as we proceed through next year. There is a strong correlation in pickup truck sales and housing starts. Our forecast for housing starts is some nice growth. We?re looking for a truck fleet to really be turned. That in and of itself is important to automakers and to suppliers. When you look at the suppliers particularly in West Michigan, there are a lot of suppliers that are tied to vehicles like the Silverado/Sierra and the F-series and the Ram. These are key programs for the suppliers, high-volume programs. To the extent that those are performing better, that bodes well for the supply chain.

What new vehicle launches are you really keeping an eye on in 2013?

We have got some really key launches coming out: the next-generation full-size pickup for General Motors, high-profile ones like the Corvette, a new Cherokee from Chrysler that?s going to be the Liberty replacement, the new Corolla and the new Tundra from Toyota ??in addition to digesting the launches that are going on right now, for example, like the (Honda) Accord and (Ford) Fusion.

You and other analysts have noted the high rate of new launches. How long will the industry maintain that pace?

Over the next 18 months to 24 months, there?s going to be heavy launch activity. We?ve got a significant amount of launch activity coming out of North America, and from a variety of automakers too. We?re looking at about 27 models next year being launched and about 42 in 2014. Automakers and suppliers and the like are going to be very busy over the next two to three years really in these new models.

Have the capacity issues corrected themselves?

We?re running into capacity constraints, not just at the automaker level, but at the supplier level. Next year will be interesting.

When will the suppliers finally pull the trigger on new equipment and expansions?

I fully expect the commercial banks to be quite busy next year as these suppliers cope with the volumes and really cope with the need to expand. There have been a lot (of suppliers) making those moves and doing an expansion. Some have been a little more cautious and holding off. But I think they?re going to find themselves having to jump in as we move into 2013.

Shouldn?t the relative stability in the North American market help convince them now?s the time to invest?

As we move through 2013, we?re at this pivot point, this inflection point with light vehicle sales. Our U.S. light vehicle sales forecast for next year stands at 15.1 million. This year (2012) we?re at 14.4 (million), so that?s a nice increase over this year. The prior year for vehicle sales was 12.8 (million). You can see this nice progression here, and we?re at this intermediate inflection point. We?ve been in the mindset that we?d be in this slow and steady growth path. In this year is when we kind of made that pivot, with (sales) a little less slow and more steady. Seeing 15.1 (million) next year is a nice progression. There?s nothing that?s necessarily going to derail the system or be super concerning in terms of overheating, but it?s decent growth out there.

What?s your take on the health of the supply chain?

A lot of suppliers are just hanging on: Not hanging on and trying to keep producing, but hanging on and trying to hit all these production schedules. It?s such a different environment than we?re used to. They making money, and they?re loving it from that perspective, but maybe with a wary eye: Can we keep on hitting those (deadlines)?

Bottom line: How do you see 2013 shaping up?

We?re very optimistic on North America. The fundamentals are looking quite good.

Interview conducted and condensed by Joe Boomgaard.

Source: http://mibiz.com/item/20355-qa-mike-wall-analyst-at-ihs-automotive-grand-rapids

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