Here’s Why the Auto Industry’s Recovery is Uncertain

While the automotive industry has begun to recover from work stoppages and supply shortages in the aftermath of the Japanese (NYSE:EWJ) earthquake, there is still plenty of uncertainty as to whether the market is truly recovering from the recession.

“Some pricing and supply issues are still restraining market growth and there is also an underlying question of whether there are larger economic issues at play,” said Edmunds.com Chief Economist Lacey Plache. “Exactly how consumers react to next month’s summer sales events will go a long way toward answering that question.”

While Plache is predicting that industry sales volume will increase 1.6% year-over-year, Toyota (NYSE:TM) and Honda (NYSE:HMC) are both lagging behind the group, though Toyota has been quicker to recover than expected, and could reach normal production levels by fall. In fact, Toyota actually reported a net profit of  Y1.16 billion in its March-June quarter despite the earthquake. While Toyota’s fiscal first quarter profit was down 99% from its Y190.5 billion net profit in the first quarter of 2010, its relatively small profit still beat a predicted net loss of Y78.07 billion, and resulted in Toyota raising its fiscal-year net profit target by nearly 40%.

Honda also raised its full-year profit forecast by 18%, expecting net income for the year ending March 31, 2012 to reach Y230 billion, less than half the automaker’s posted profit of Y534 billion during the last fiscal year, but up from earlier estimates of a Y195 billion profit. The automaker’s first quarter profit fell nearly 90% after the March earthquake pushed down sales 27%.

Meanwhile, U.S. automakers are looking at year-over-year growth, led by Chrysler, now under the control of Italy’s Fiat (PINK:FIATY). Chrysler sales are expected to increase 15% in fiscal 2011 as it recovers footing coming out of the the recession and its government bailout, while General Motors (NYSE:GM) and Ford (NYSE:F) are predicting single-digit growth. However, American companies have been benefiting from the lack of supply from their Japanese competitors, and that could taper off as companies like Toyota, Honda, and Nissan (PINK:NSANY) get production back to normal levels.

Furthermore, economists note that the industry might not grow as expected, given general economic weakness, particularly in the manufacturing sector. It’s a wait-and-see game, and July’s sales results won’t necessarily be enough to tell us whether the market is truly recovering from the recession.

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