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.
The cars — glitzy and sedate, grand and green — were back in the spotlight Monday (Jan. 9) as Detroit celebrated the industry’s comeback from grueling recession at the annual auto show here.
Yahoo News reported that the excitement was clearly in the air at the industry’s premier North American extravaganza, with US and foreign makers confidently launching new models and predicting growing markets in the United States and the big emerging economies — albeit with a cautious eye still on troubled Europe.
U.S. Transportation Secretary Ray LaHood opened this year’s show cheering the industry’s future, three years after two top U.S. automakers, General Motors and Chrysler, nearly died in the economic crash and the industry lost hundreds of thousands of jobs.
“As you look at these breathtaking vehicles, I ask you to remember they represent more than creative thinking and design,” LaHood said.
“They represent American factories bustling and humming, American workers churning out cars, and American families earning paychecks again.”
All three of Detroit’s carmakers are now back in profit, and last year regained market share from their arch-rivals, the Japanese producers, for the first time since 1988.
The Japanese were set back by the interruption of manufacturing from the devastating March 11 earthquake-tsunami disaster.
The deepest recession since the 1930s, and the controversial government rescues of the two — the third, Ford, barely scraped by — had held a cloud over the Detroit show since 2008, while the cars themselves got less attention.
But after a radical revamp of their product offerings and two years of steady growth in US sales, the Detroit Three are ready to fight, not only to hang onto their lead, but to expand it.
Ford opened with an all-new Fusion, unrecognizable from the past, which targets the dominance of Toyota’s Camry in the all-important if not sexy mid-sized market.
The four-door, estimated to cost around $22,000, comes in gasoline, hybrid and plug-in hybrid versions, all cloaked in distinctively European styling — done in America.
“What we wanted was a car that looked visually like a premium car,” said J. Mays, Ford vice president for design.
“I am proud that we came up with a world-class design here in Dearborn (Michigan).”
Chrysler revived its clunky Dodge Dart of years ago in a small slingback four-door entry-level car (read: $16,000) that will please young people hoping for a little sportiness from Chrysler’s Italian owner Fiat.
And GM’s Chevrolet unveiled two concept cars — the Code 130R and the Tru 140S — aimed at the younger market with a little more money than the Dart.
There was plenty on offer at the higher end of the market, with Porsche’s brand new Carrera, BMW’s shake-up of the 3 series, and all new Mercedes-Benz SL roadster which celebrates the classic car’s 60th anniversary.
The “premium” class makers were all confident that luxury car sales would continue to grow faster than the market overall.
“A disproportionate part of that growth will be the premium segment, and we intend to take the lion’s share,” Mercedes chief executive Dieter Zetsche said.
“I think we’ll see good progress… with consumer confidence rising here,” said BMW’s Ian Robertson, after selling 305,000 units in the US last year.
Green car fans were hardly being left behind. There were the hybrid Fusions, new producer Via Motor’s promise of electric pickup trucks, Volvo’s plug-in hybrid concept, new hybrids from Mercedes and BMW, and an electric van from Nissan along with Toyota’s popular and expanding Prius offerings.
Even with the confidence — which extended as well to opportunities in the major emerging markets like China, India and Russia — automakers recognized that competition was going to harden.
The Japanese need to rebuild U.S. market positions after the earthquake, and the Europeans need to compensate for the weakness in their home markets.
South Korean carmakers Hyundai and Kia — the big success story of the downturn, after winning over consumers seeking good value — will be working to keep up their momentum.
“There’s nothing like competing at the highest level to sharpen the best edge in people,” GM chief executive Dan Akerson said at a sneak peak of the latest Cadillac.
The following is an article appearing on Macleans.ca offering an upbeat look at the auto industry’s recovery after near death in 2009.
In 2009, when there seemed no bottom to how far the economy might fall, a series of photographs circulated online showing thousands of unsold cars piling up around the world. With consumers paralyzed by the credit crisis, automakers filled docks, vast meadows and even abandoned airport runways with the vehicular glut. The striking yet surreal aerial photos could have hung on a gallery wall were it not for the economic devastation they represented. Today, some economists are once again warning the world is on the cusp of another crisis as Greece burns, gas prices remain high and America’s job market stagnates. Only this time instead of pulling down the global economy, the auto sector is seen as the best hope of jump-starting the recovery.
Call it Cars 2—not the animated big-budget sequel making its way through theatres, but the return of cars and trucks as key drivers of the critical U.S. economic machine. “Americans still love their cars,” says Michael Burt, who tracks industrial economic trends for the Conference Board of Canada. “The types of vehicles they may purchase will change, but they’re continuing to buy.” The question now is, how long can America’s love affair with metal and rubber overcome the economic headwinds?
On the surface, the auto sector’s performance in June seemed disappointing. When American sales for the month were tallied, the results fell short of analysts’ forecasts. Sales growth came in at 7.1%, according to Autodata Corp. That was less than the 8% to 10% analysts had predicted, and slower than the growth registered in May, which was already a sluggish month.
However, the big-picture data masks dramatic improvements in the industry. Most importantly, Detroit carmakers are on a roll. General Motors sales climbed 11%, while Ford sales increased 14%. Chrysler, meanwhile, saw its sales jump 30%, the biggest increase since 2007. It was a similar story in Canada, where the Big Three of Detroit all saw big gains in sales, while the Japanese carmakers posted declines. The overall numbers would have looked a lot better were it not for the fact that Japanese automakers are still recovering from the earthquake and tsunami in March, which severely disrupted their supply chains. In June, Toyota’s sales fell 21%, while Honda saw a decrease of 24%. In the case of Toyota, its inventory of vehicles collapsed 40% compared to last year. “It’s very difficult to sell cars and trucks when you don’t have any,” Don Esmond, senior vice-president of operations for Toyota Motor Sales USA, told the Detroit Free Press.
Auto sales in the U.S. are likely to come in 20% below their annual average of 16 million this year. But the important thing is that gap is closing much faster than was expected even six months ago. “Automakers don’t have a problem selling,” says Burt. “They have a problem meeting demand because of short supply. That’s good news for the industry.”
It also bodes well for Canada’s auto industry, since 84% of vehicles built here are sold in the U.S. According to Carlos Gomes, an economist at Scotiabank, production at Canadian auto factories is expected to jump 21% in the third quarter, compared to just a three per cent gain in the first half of the year. That, in turn, is set to drive profits in the Canadian auto assembly industry to close to $1 billion this year, predicts Burt, up from a paltry $114 million in 2010.
Another sign of the demand in America is the sharp rise in prices for used cars in recent months. That’s because vehicle output declined so sharply after 2008, leading to a shortage of two- to three-year-old vehicles for resale. In June, the National Automobile Dealers Association estimated that trade-in values would rise as much as 17% that month. Last week, a Florida Toyota dealership made headlines when it paid more to buy back a used Prius hybrid from a customer than the dealer had sold the car for 15 months earlier, despite high mileage.
One key factor powering sales is the pent-up demand for new cars and trucks. The average age of vehicles on America’s roads is now 10 years, compared to a historical average age of eight years, says Gomes. Auto lenders have also opened up the taps, even for those drivers with dubious credit, according to a new report from Equifax, the consumer credit bureau. Just as important, the carmakers, particularly Ford and GM, have revamped their offerings with stylish small cars at a time when consumers are struggling with high gas prices. While the Ford F-Series and Chevy Silverado pickup trucks sold the most overall, the Chevy Cruze, Chevy Malibu and the restyled Ford Focus were the top-selling cars. (The Toyota Camry is typically number one, but vehicle shortages knocked it out of the top spot.)
With America’s housing market still a wreck, no one expects the auto sector alone to steer the country to boom times. That would be akin to a Ford Focus pulling a burning motorhome up the side of a mountain. But the industry is helping keep the recovery in gear. “The ramping up of production in the auto sector is going to make a significant contribution to overall economic activity in the coming months,” says Gomes at Scotiabank, who predicts vehicle production in North America will jump 18% from last year to an annualized 14 million units, putting it at the highest level since before the economy began to crater in mid-2008. As work on the assembly lines picks up, Gomes says global GDP growth could get a boost in the third quarter of 0.5 percentage points on an annualized basis.
The U.S. economy has already benefited as foreign car companies move production to American soil, adding new jobs and boosting local economies. In May, Volkswagen opened a new plant in Tennessee, employing 1,200 production workers. Toyota plans to move production of the Corolla from Japan to Mississippi. Meanwhile, Honda has said it will speed up the transfer of work from Japan to plants in Indiana, Ohio and Alabama.
The road ahead is bumpy. Consumer confidence has slipped and employment growth has slowed. But the auto sector is far healthier than it was before the Great Recession, thanks to a painful period of restructuring. And that has put it in a position to not only navigate a stormy economy, but to give a boost to the recovery as well.
Auto sales rose in the United States last year for the first time since the recession. They’re still far from what they were just a few years ago — but that’s just fine with the downsized auto industry, which can post profits even if they sell millions fewer cars and trucks, The Associated Press has reported.
For the year, car and truck sales came in at 11.6 million, up 11% from last year, automakers reported Tuesday (Jan. 4). For December alone, sales were 1.14 million, also up 11% from a year earlier.
While the figures have some in the industry talking about a return to the glory days, it’s a fragile idea. Rising gas prices or more economic trouble could still shake the confidence of American car-buyers.
But for now, executives are optimistic about this year. General Motors, Ford and Toyota all predict sale will come in at 12.5 million to 13 million for 2011. It will take years, analysts expect, to get back to the peak sales of the middle of last decade — more like 17 million.
“The economic downturn has lasted quite a while,” says Jessica Caldwell, director of pricing and analysis for consumer website Edmunds.com. “It’s going to be slow and gradual rather than a fast bounceback.”
Toyota was the only company that sold fewer cars and trucks than in 2009. The company was stung by sudden-acceleration recalls in early 2010 and never fully recovered despite luring buyers with generous incentives. Production problems at its San Antonio plant cut its supply of Tundra and Tacoma pickup trucks, and troubles importing the Prius hybrid also hurt sales.
“We’re coming off what was arguably the most challenging time in our 53-year history,” says Don Esmond, senior vice president of Toyota’s U.S. operations. He says he is optimistic that sales will rebound in 2011.
U.S. automakers are relieved to have the past two years behind them. When the financial crisis hit in the fall of 2008, car sales plummeted. GM and Chrysler were on the brink of death, saved by a $60 billion government bailout and speedy bankruptcies that helped both companies close plants and eliminate debt. Ford didn’t declare bankruptcy or take a bailout, but it closed plants, laid off employees and worked to lower its overall cost structure.
As a result, those companies can now make money, even if sales hover below pre-recession levels.
Over the past two years, many Americans, even those who had enough money to buy a car during the recession, had been wary to commit to monthly car payments, so they put off making such a large purchase. Many opted to repair or make do with what they had.
Those buyers are easing back into the market, replacing aging vehicles. The average vehicle on U.S. roads is now 10.2 years old — the most since 1997 and a full year older than in 2007, before the recession, according to the National Automobile Dealers Association (NADA).
“With 240 million vehicles out there on the road, a lot of them are going to be ripe for replacement,” said Ellen Hughes-Cromwick, Ford’s chief economist.
Auto sales peaked in 2005 at 17.4 million and bottomed out at 10.6 million in 2009. The peak was fueled, in part, by big incentives — like the employee-discounts-for-everyone schemes that were popular in the summer of 2005. But those deals may be a thing of the past.
Don Johnson, vice president of U.S. sales for GM, said GM expects sales eventually will creep back up to 15 million or 16 million, but not much higher. Car companies have downsized and they’re producing fewer vehicles, so they don’t have to resort to costly incentives in order to clear out inventory. Also, buyers have been spooked by falling home prices and high unemployment — fears that could have a lasting effect on buying patterns.
Gas prices should go up in 2011, which could change the kinds of cars buyers want. After moving away from large trucks and SUVs when gas prices spiked in the summer of 2008, Americans turned back to bigger wheels in 2010, and SUV and truck sales rose again. Car sales made up 49.8%of sales in 2010, while truck sales made up 50.2%. And trucks and SUV sales keep growing: In December, they made up 54.3% of total sales. That was despite gas prices that topped $3 a gallon.
“Buying behavior doesn’t change dramatically unless gas prices change dramatically,” says Rebecca Lindland, director of automotive research with IHS Automotive. “If they gradually increase, people adjust.”
That’s because Americans love their SUVs, says Jesse Toprak, vice president of industry trends and insight for the automotive website Truecar.com. The trend will continue unless gasoline rises above $3.50 per gallon, Toprak predicts.
The figures include only sales made in the United States, and don’t count sales made by U.S. automakers in other parts of the world. Globally, auto sales should hit around 65 million this year.
The U.S. car market is considered the most profitable market in the world, because buyers tend to pay higher prices for vehicles and opt for add-ins that bring up the cost.
A surge in auto purchases helped lift retail sales in October by the largest amount in seven months. But excluding autos, retail sales rose more modestly, the Associated Press reported.
October marked the fourth straight increase in retail sales after declines in May and June. Those drops had raised fears about the economic recovery. Still, economists say consumers probably aren’t spending enough to lift sales growth above the lackluster pace of the past six months.
Consumers are still struggling with scant income gains, high debts and painfully high unemployment, which remains stuck at 9.6% even though the recession ended more than a year ago.
Paul Dales, U.S. economist at Capital Economics, interpreted October’s retail sales as a sign that consumption growth is improving. He cautioned that spending remains too tepid to drive economic growth higher in the current quarter. Consumer spending is closely watched because it accounts for 70% of U.S. economic activity.
Overall retail sales rose 1.2% in October, the Commerce Department said Monday. That was nearly double the gain that had been expected and the largest increase since March. But excluding autos, sales rose 0.4%.
In a second report, the government said inventories held by businesses grew 0.9% in September. It was the ninth straight monthly gain. And total business sales rose 0.5%, the best showing since July.
Steadily higher inventories and sales are seen as signs that the economic recovery will continue. Inventory rebuilding has provided support for the economy.
For October, sales at auto dealerships rose 5%. That gain had been expected because of reports from automakers that October auto sales rose to an annual rate of 12.3 million units. That increase was the best monthly showing since the government’s Cash for Clunkers program sent sales surging in August 2009.
Outside of autos, sales at general merchandise stores, a category that includes department stores and big chains such as Wal-Mart Stores Inc., rose 0.2% in October after a slight 0.1% rise in September. Sales at specialty clothing stores fared better: They rose 0.7% after having fallen 0.4% in September.
The nation’s big retailers had reported lackluster sales in October. Analysts ascribed some of the blame to an unusually warm October that lured shoppers to other activities and away from the malls.