Detroit Automakers Stage Comeback
Detroit has again become a symbol of economic prosperity, that is, at least within the auto industry. On the brink of collapse just three years ago, Detroit-area automakers have staged a comeback of near-epic proportions to become an industry safe haven as concerns grow about the stability of other major economies around the world.
U.S. auto sales are projected to grow 4 percent to 9 percent in 2012, which would make for the third consecutive annual gain. And the only reason analysts and executives aren’t more bullish is the risk that the European sovereign debt crisis may result in a global slowdown.
In 2011, all three U.S. automakers increased their share of the U.S. auto industry for the first time in 23 years, though increased levels of competition mean a return to the boom years of 17 million annual sales is unlikely. U.S. automakers were also given a boost by supply disruptions following Japan’s earthquake and tsunami last March that decreased production at some of its largest foreign competitors, namely Toyota (NYSE:TM).
Volkswagen has also become more aggressive of late, and Hyundai has gained “huge momentum that will continue into 2012,” said Tom Libby, senior forecasting analyst at Polk, a Michigan-based automotive consulting firm. “There are now eight major manufacturers vying for share” in the U.S. auto market, he said.
Though still working to rebuild inventory, Toyota, which lost 2.3 percent of the U.S. market last year, and Honda (NYSE:HMC) can’t be ruled out of the competition as they preview 2012 updates of their popular Prius and Accord models at this week’s Detroit auto show.
And though Chrysler, General Motors (NYSE:GM), and Ford (NYSE:F) had a banner year in 2011, Volkswagen and Hyundai-Kia are also getting attention after posting the biggest U.S. sales gains of the year. Volkswagen hopes to double its U.S. market share, said Rainer Michel, product strategy and marketing chief for Volkswagen of America. “Our aim should be being visible on the street, so every five or six cars out of 100 on the road should eventually be a Volkswagen.”
Though the VW brand only had 2.5 percent of the U.S. market last year, its luxury Audi brand accounting for nearly 1 percent, VW sales in the U.S. grew 26 percent in 2011, compared to a broad market expansion of 10 percent.
Like all auto makers, VW will be hit by an expected slowdown this year, with Polk forecasting that growth in the U.S. auto industry will slow to a more modest 7 percent in 2012, while the European market remains flat or declines.
“Europe is where we face the biggest uncertainties because of financial market volatility, and we’re having to adapt our products to increase share,” said Philippe Dehennin, head of German premium automaker BMW’s French division. “The U.S. market, along with China, offers significant growth potential with our existing models. It’s an absolute priority.”
U.S. automakers are counting on a domestic recovery to soften the impact of a European slump. “As I look around the world, my greatest confidence is about the U.S.,” said GM Chief Economist Mustafa Moharatem at an analyst conference in Detroit on Sunday. “Europe is where I see the greatest uncertainty, because we don’t know how the sovereign debt issue will be handled. “Moharatem also predicted “slower growth and more uncertainty” in major emerging markets.
It is also important to keep in mind that the growth rate in the U.S. “looks good because we’re coming off very depressed levels,” says Citigroup U.S. auto analyst Itay Michaeli. Though demand is rising, it is still well below the 17 million annual sales averaged before the 2008 crisis.
For the first time in U.S. history, consumers are scrapping more vehicles than they are buying. Younger vehicles are increasingly forgoing a second car, while middle-aged couples are forgoing a third, according to a Citigroup study, which concludes that annual sales will probably remain in the 13 million to 14 million range “for the next few years.”
Don’t Miss: Audit Rates Rising for the Wealthy
To contact the reporter on this story: Emily Knapp at firstname.lastname@example.org
To contact the editor responsible for this story: Damien Hoffman at email@example.com