Happy days again for carmakers - those that can wait
A. Gary Shilling, an economist, has good news for Detroit: Auto sales in the United States could climb again - to as high as 13 million cars a year. That's well above the record 11.4 million sold in 1973.Skip to next paragraph
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But there's a hitch. He's making that prediction - 11 million to 13 million in sales of domestic and foreign autos - for the years 1983-85.
''We have been underreplacing cars,'' he said in an interview. ''That is giving us a backlog.''
But the years before sales catch up are what is worrying the domestic auto companies. They racked up around $1 billion of red ink in the first three quarters of this year.
''There is a good chance Chrysler won't make it,'' says Mr. Shilling, who is president of A. Gary Shilling & Co., an economic consulting firm he established a few years back and which now employs about a dozen professionals. He had been chief economist at Merrill Lynch and White Weld, two brokerage houses, before taking the bold step of launching his own firm. His success is one measure of the high esteem the business community has for him.
Mr. Shilling notes that last year domestic automakers sold fewer cars than they did in 1930. Just as surprising, the number of cars per driver declined. In other words, the tendency for households to have two or three cars rather than one car has on average been stopped in its tracks.
The consulting economist recognizes high interest rates and ''sticker shock'' - the high price of autos today - as factors in the poor sales. But he gives special weight to the effect of higher gasoline prices.
''Each 10-cent increase per gallon depresses car sales about 1 million,'' he calculates. And that calculation takes account of the better mileage of today's autos and some seven or so other factors.
Shilling is referring to ''real'' gasoline prices, deflated for the effect of inflation. In terms of 1972 dollars, gasoline prices rose from about 30 cents a gallon to 45 cents when the price of OPEC oil was quadrupled in 1973-74. Then the price of gasoline declined in real terms to about 40 cents in 1979 when OPEC acted again and domestic crude prices were decontrolled. By 1980 the real price of gasoline soared to 70 cents.
As a result, consumers are not only buying fewer cars, they are driving them fewer miles per year. This means the old clunkers are lasting longer. Usually cars are taken to wrecking yards after about eight years. Now more are being driven one, two, or even three years longer.
Shilling notes, however, that eventually those autos sold in the boom years of the early '70s will roll to a stop. Most of those are ''gasoholics'' - cars with poor mileage ratings.
''Then there will be a tremendous catch-up in auto sales,'' he said. The scrappage backlog should be combined with a ''straightening around'' of the economy to give the auto industry boom times once more.
But he is not expecting auto sales to go back completely to their former trend. The higher price of auto transportation will discourage some sales. So he projects that the nation will have some 105 million cars on the streets in 1986, 3 million less than if gasoline prices and other factors had not changed.
Looking at the economy as a whole, Shilling figures the economy is softening, and asks: ''Is that weakness going to be enough to satisfy the Fed (Federal Reserve System)? The Fed is coming into this with a determination to maintain tight credit like I have never seen before.''
Shilling figures that auto and house sales - already hit badly by high interest rates - can't drop much further. Inventories are relatively tight because of the high cost of financing. But he sees weak areas as commercial construction, small business, and the thrift industry. Capital expenditures could remain weak.
''We could get a down-spiral in the economy,'' he says. ''But I think the most likely case is we don't have great downside vulnerability.'' In other words , the recession will be mild. There could be a ''jolt'' in the financial area, but not likely a collapse.