New auto industry coming

Jim Ostroff, an associate editor with The Kiplinger Letter, predicts in this report “an altogether revamped U.S. auto industry, with at most two carmakers, far fewer parts makers, slimmer dealer networks and very different cars.”

Ostroff’s prediction follows news that Ford will relaunch its Ford Fiesta in early 2010. The Fiesta is being labeled as Ford’s first “world car,” meaning that the same car platform will be sold on in all global markets. Ford is betting the restyled car with more power than most cars of its size will attract consumers who typically choose Honda and Toyota when buying small cars.

“As the industry adapts, the cars Americans drive will change dramatically. They’ll be more agile and more fun to drive, with Indy racer pickup and handling. Vehicles will weigh 500 pounds less, with better weight distribution,” Ostroff noted in his report.

Unfortunately, Ostroff’s predictions of a revamped auto sector includes a note about the changes hurting states with auto-sector supply companies. He predicts these hardest hit states — apart from the major auto sates of Michigan, Ohio, Illinois and Missouri — to be Alabama, Arkansas, California, Florida, Iowa, Kentucky, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Texas and Virginia.

Overall, Ostroff predicts 250,000 more auto industry jobs to be lost by December 2010, with the personal income lost topping $13 billion.

Other predictions made by Ostroff include:
• U.S. sales will hit 13.5 million vehicles by 2011, rising to 17.2 million by 2019. That’s equal to the 2000 peak and almost double the trough of 9.5 million vehicle sales likely for this year.

• Foreign firms will keep producing cars here to save on shipping costs and limit currency risks. They’ll soon hit parity or better with U.S.-owned firms and even surpass them slightly in the next decade. Southeastern states stand to gain as Toyota and Honda expand production along with other foreign based firms. Parts suppliers are also migrating southward.

• Come 2019, U.S. firms will make nearly half of the 10 million vehicles manufactured on U.S. soil. That compares with 5.5 million made here this year. Imports, meanwhile, are sure to go up, from 4 million today to about 5.5 million in 2011. Look for 7.2 million imported vehicles in 2019.

• Cars will get better gas mileage, of course, with hybrids starting to rule the highways. They’ll account for 50% of vehicle sales by 2015, up from 3% now.

• Odds favor a GM-Ford merger or partnership by 2020 so they can compete profitably against other behemoth automakers domestically and especially in China, which soon will vastly exceed the U.S. as the world’s largest new vehicle market.