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United States the Only Bright Spot for Automakers

Global automakers struggling with falling sales in China and Europe are now looking at the United States, which with its high level of pent up demand, could be the next growth market they are looking for, say analysts.

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“Sales in China as well as India have been slowing down, Europe is very weak, there is only one bright spot and that’s the U.S. The U.S. market is very strong,” said Koji Endo a Tokyo-based auto analyst at Advanced Research Japan.

Endo expects car sales in the U.S. to hit 14.5 million units this year – the highest in five years. In 2011, car sales totaled 12.8 million units.

In the first half of the year, U.S. auto sales rose 15 percent year-on-year compared to just 2.9 percent in China. Sales in the world’s largest car market have been declining since last year after the government rolled back auto purchase incentives, and major cities including Beijing limited the issuance of new car license plates to ease traffic congestion.

Analysts say there are growing concerns of oversupply in the mainland market, with dealerships struggling to get rid of inventory in the face of sluggish demand.

Michelle Krebs, Senior Analyst at auto researcher Edmunds.com agrees that the North American market will be key in supporting sales for automakers this year.

“In the U.S. economy, there’s a lot of pent up demand. People just held on to their cars for a long time during the recession and now there’s credit available for all these people who are coming back into the market,” Krebs said on CNBC Asia’s “Squawk Box.”

Endo adds that currently the average age of cars on American roads stands at 11 years – the highest in its history.

“Many people are looking to replace old cars with new fuel efficient cars - more hybrids and small cars,” he said, adding that Toyota and Honda are the best positioned to take advantage of the growth in demand in the two segments.

However both Endo and Krebs say the question remains on how long demand in the U.S. will hold up.

“The big worry is can North America keep sustaining this or is there going be a contagious effect from other markets (like Europe),” Krebs said.

Endo also warns that sales in the world’s third largest car market Japan are set to “nosedive” in the fourth quarter of this year after eco-car government subsidies expire at the end of August. In December 2011, Japan reintroduced a scheme giving a subsidy of up to 100,000 yen ($1,280) per car on energy efficient vehicles.

He says he expects car sales in Japan could decline by 30-40 percent in the six months following the expiration of government incentives.

“If the U.S. slows and the Japanese market nosedives and Europe, China and India are slowing too, the picture is not good,” Endo said.

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