Merkle: Auto industry to recover in '10

GRAND RAPIDS, Mich. (WOOD) - The auto industry will recover in 2010 and do so more quickly than many expect, auto analyst Erich Merkle told an industry conference Wednesday.

Merkle expects 2010 auto sales in the United States to reach 12.5 million, up from a figured now pegged at just over 10 million for 2009. That's close to a forecast of 12.5 million to 13.5 million vehicle sales "at best" in 2010 released Tuesday in a presentation from Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research . If consumer confidence isn't there, sales may only grow to between 11 and 11.5 million, according to McAlinden's presentation.

Why the uptick?

"The thing I like is, when I start to look nationally, I'm starting to see that the labor markets are stabilizing," Merkle, president of Autoconomy LLC, told 24 Hour News 8. "A couple weeks ago, we got a numbers number out where the unemployment level actually dropped from 10.2 percent to 10 percent nationally."

And when labor markets stabilize, "that's when we start to hit our turn in terms of auto sales, because the people that are working have been holding off on a buying a new car. But when they start to feel more comfortable in their jobs and they're starting to see some expansion and some renewed activity, then they start going out and they start looking to make that purchase, like a new car," he said.

Michigan as a state -- and West Michigan as a region -- will see a benefit from that, said Merkle, who was speaking at an industry outlook conference put on by BDO Seidman and hosted by Grand Valley State University.

"We'll see benefit in 2010 compared to 2009 but in terms of Michigan getting back to pre-recessionary levels in terms of employment, in terms of economic activity, that could be a long way out," he said.

Still, Michigan firms are beginning to hire, said Andrew Samrick, founder of Simplicity Tactics LLC and another speaker at the conference.

"The larger the company the earlier they move into recruiting, but people are on that runway and they're taking off," Samrick told 24 Hour News 8.

That assessment is based on conversations and a statistical sample of Fortune 100 companies, Samrick said. "People keep telling us they're starting to hire."

And Michigan manufacturing stands to benefit from two current trends, he said: short-term increases in shipping costs and higher costs of doing business in China and India that will come from pollution controls in those booming countries.

The benefit from the first is that, as shipping costs increase, companies will find fewer advantages to manufacturing goods overseas and bringing them to North America. Pollution conrols in China and India will likely have a longer-term impact, but as the costs of operating in those countries increase, again, companies will find fewer advantages to manufacturing there.

The trick for Michigan, of course, will be convicing companies looking to bring manufacturing back to the United States to locate here as opposed to southern states with lower labor costs.

"The thing that we can lead with here," Samrick said, "is the workforce. Having owned business that operated throughout the U.S. and Canada, you won't find a better workforce than you will in western Michigan. Better trained, better quality and more conscious of the value of the work that they do. People here want to do it right because it's how we were brought up.

"In low-end down-and-dirty parts that don't have higher quality, it's difficult to compete because ultimately labor cost drives. But when we're talking about more advanced parts, we're takling aerospace, we're talking advanced automotive safety features or any car that needs to have parts that run tightly, you need a more highly skilled and better-trained workforce," Samrick said. "You can't have novices walk in and build safety cages properly. It just doesn't work as well."