U.S. auto industry struggles for traction

By Jui Chakravorty and Poornima Gupta

DETROIT (Reuters) - The major U.S. automakers, in the midst of a wrenching restructuring, have won sweeping labor concessions that promise to save billions of dollars in health-care costs and wages.

Now comes the hard part.

General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC face the prospect that surging oil prices, tight credit and a weak housing market will prolong a slump in U.S. auto sales, slowing their turnaround efforts at a crucial point.

"I think next year is a challenging year," said Pete Hastings, a senior corporate bond analyst at Morgan Keegan. "We see a tough economy, a consumer less willing to spend, and I think we'll see these same conditions persist. Tighter lending standards are going to have an effect as well."

For investors and creditors tracking the U.S. auto industry's long-running effort to return to profitability, the risk of a slowdown or outright recession in the United States next year looms large.

There are other uncertainties as well. Can Detroit fund its costly restructuring and keep pace with ambitious rivals, led by Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz), in developing fuel-saving technologies? Will tougher credit markets prolong a consolidation of the industry's battered supply base?

Those are among the questions that will be taken up by leading industry executives, investment bankers and labor leaders at the Reuters Auto Summit, being held in Detroit and Frankfurt November 18-21.

For major automakers, a big challenge remains the anemic U.S. market for new vehicles, with the Detroit-based carmakers widely seen as having the most at stake because of the pressure they face to reverse compounding losses.

Industrywide sales are expected to slip to near 16 million vehicles this year, marking the second consecutive annual decline and the lowest tally since 1998.

For 2008, the most cautious forecasts hold out the prospect for another 3 percent slide in U.S. sales to near 15.5 million vehicles.

NO SIGNS OF A QUICK COMEBACK

"When you look at the U.S. auto industry, it's been in recession since 2005," Dominique Thormann, Nissan Motor Co's (7201.T: Quote, Profile, Research, Stock Buzz) finance chief for North America, told Reuters. "Now the housing industry is in recession. The financial services industry is in turmoil. So we don't see anything right now to suggest that things are going to improve in the short term."

George Magliano, senior analyst at industry tracking firm Global Insight, said pressure on the industry could run into 2009 -- just when Ford and Chrysler have forecast that they will return to profit.

"If it was difficult this year, it's going to be extremely difficult next year and it's going to stay that way into 2009," Magliano said. "Everybody is going to struggle."

He added, "Of course, it is going to put a lot of pressure on Detroit as they are looking to restructure."  Continued...