Auto sales are growing so fast that Detroit can barely keep up.
The Associated Press reported that three years after the U.S. auto industry nearly collapsed, sales of cars and trucks are surging. Sales could exceed 14 million this year, above last year’s 12.8 million.
The result: Carmakers are adding shifts and hiring thousands of workers around the country. Carmakers and parts companies added more than 38,000 jobs last year, with industry employment averaging 717,000 for 2011. And automakers have announced plans to add another 13,000 this year, mostly on night shifts.
But there’s a downside. The newfound success is straining the factory network of the Detroit automakers, as well as the companies that make the thousands of parts that go into each vehicle. This could lead to shortages that drive up prices.
And it also has auto executives in a quandary. They got into trouble in the first place largely because their costs were too high. Now, they fear adding too many workers.
Ford, for instance, is “squeezing every last component, transmission, engine out of the existing brick and mortar,” says Jim Tetreault, vice president of North America manufacturing.
“You can only squeeze so much out of the same amount of people,” says Itay Michaeli, an auto analyst at Citi Investment Research.
Laurie Schmald Moncrieff, president of a small parts-manufacturing company near Flint, Mich., says when demand for auto parts collapsed, she shifted production to parts for companies in green energy, aerospace and defense.
Now, automakers and other parts suppliers have her on speed dial, trying to line up everything from fuel pump parts to tools that make hoses. She just added six workers and may hire another five. “I see tremendous growth coming in the near-term,” she says.
The sales rebound comes with risks that are familiar to Detroit. Crank up production too much and carmakers have to sell vehicles at deep discounts. Boost production too little, and companies could run short of vehicles such as pickup trucks. And even if they find the right balance now, automakers are leery of raising long-term costs by adding plants and workers.
Six years ago, Detroit’s automakers were losing billions, in part because they had too many plants and workers. And union contracts forced them to pay workers even if plants were shut down. So automakers kept the factories running regardless of whether vehicles would sell in order to cover expenses. They built too many cars and trucks and sold them cheap, sometimes at a loss.
Now, they’re doing everything they can to keep costs under control.