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Big Three CEOs cautious on industry outlook

General Motors’ CEO Rick Wagoner said Monday that the U.S. automotive industry is in a recession, but should weather the storm as long as the economic climate doesn’t worsen.

General Motors’ CEO Rick Wagoner said Monday that the U.S. automotive industry is in a recession, but should weather the storm as long as the economic climate doesn’t worsen.

Speaking to CNBC from the floor of the Detroit auto show, GM’s chief executive said that, with the automaker’s U.S. sales down 6 percent in 2007, it feels as though the U.S. automotive industry is in a recession.

“Automotive sales have been below trend for four or five years in a row now and people are asking how much worse it can get,” Wagoner said. “Assuming the economy doesn’t really turn into a basket case, we are really running along the bottom here,” he added. “The question is when will it turn around and right now it’s hard to say; the crystal ball isn’t clear on that.”

Wagoner’s comments on the outlook for the auto industry follow similar remarks by Ford’s North America president Mark Fields, who told Reuters Monday that he expects a challenging first half of 2008 for all automakers in the United States and a drop in industry-wide retail sales.

Fields also told Reuters he hopes prior Federal Reserve rate cuts would begin to support the economy in the second half of the year, and that the U.S. government would take a look at tax rates as part of an economic stimulus package.

“The first half of the year is going to be cautious. We all know what’s going on in the economy and we can't close our eyes to that, but we shouldn’t talk ourselves into a recession,” Fields told Reuters at the Detroit auto show.

An increase in the price of gasoline is a wild card in the outlook for the industry, Wagoner said. With gas rising to the low $3 level there has been some shift away from larger vehicles, such as big SUVs and pickup trucks, he noted.

“If gas goes up even higher we should expect more movement away,” he said. “To be honest, the base demand has held in a little better than we thought in those vehicle categories, but there’s certainly not any growth there.”

With its restructuring plan in full swing, renewed market enthusiasm for its products and a landmark labor contract deal struck with labor unions in 2007, GM is beginning to “turn the corner,” Wagoner said.

“The toughest issue we are dealing with right now is the negative climate around the U.S. economy and its impact on cyclical businesses,” he said.

Despite an “uncertain market,” no further job cuts are envisioned at Chrysler according to company vice president chairman Jim Press, who until recently was Toyota North America’s president.

Chrysler, the third-largest U.S. automaker has been slashing jobs to deal with a shrinking U.S. market for its products. The company said in November it would cut 8,500 to 10,000 hourly jobs and 2,100 salaried jobs through this year, or about 15 percent of its work force, adding to the 13,000 Chrysler layoffs announced in February 2006.

Press told CNBC Monday that the automaker is in a stronger position to deal with the challenges in the automotive market, and “as long as economy really does take care of the business as we expect, we should be okay.”

He also responded to rumors that Cerberus Capital Management, which agreed last May to buy a controlling interest in DaimlerChrylser’s then struggling Chrysler Group for $7.4 billion, would be sold to another automaker, such as Japan’s Nissan.

“I think we’ll see all the automakers continue to have alliances and take advantage of excess capacity and new platforms because the investment needed to develop new products is too great for any one company,” he told CNBC.

“We are going to partner up where we need to for specific products, but there’s no grand plan or sale,” he continued. “[Cerberus] doesn’t want to flip the company. They want to make it a really good company.”

Press also said the three executives in charge of Chrysler — Vice Chairman and President Tom Lasorda, Chairman and CEO Bob Nardelli and Press himself — are working together well and there are no divisions.

“We have a diversity that’s stronger than any one person,” he said. “There’s no disagreement, just creative tensions, but that’s good in any company,” he said. “It’s not cumbaya, but it’s a whole lot better than anyone could ever think. We really come together synergistically.”