Ownership Insurance Great Idea, Analyst Says

Special Coverage

CAR Management Briefing Seminars

TRAVERSE CITY, MI – Itay Michaeli, vice president of Citi Investment Research in New York, has a simple solution for the U.S. auto industry: Everybody do what Hyundai did in January 2009 in providing a form of job insurance to people buying cars.

The program bumped the Hyundai brand’s market share immediately. The whole industry should do it, says Michaeli, because it is the only way to preserve the density of car ownership in America.

Traditionally in recessions, only 7% to 10% of licensed drivers buy a car, he says. But during this recession, only 5% are buying.

Keeping the current density of more than 900 cars per thousand people means a sales volume of 14 million or 15 million cars a year, he argues, enough to guarantee a healthy industry.

If economic worries drift along and people begin to change from 2-car families to 1-car, the market only will be 11 million units, and that is dangerously low, Michaeli argues.

“Breakeven costs are low, but costs will rise with raw materials, and eventually labor costs will come back as well. And regulatory costs will add expense,” he tells the CAR Management Business Seminars.

“Our conclusion is that while the industry has its head above water, it needs 14 to 15 million annual sales to truly prosper.”

Itay Michaeli, vice president of Citi Investment Research in New York, praises Hyundai’s insurance plan for new-car buyers.