Can auto reclaim industrial supremacy?
Published:Sunday | October 9, 2011 | 12:00 AM
Contrary to the expectations of most analysts of weakening demand, US auto sales rebounded in September rising by 9.9 per cent as domestic makers - General Motors, Ford and Chrysler - turned in strong performances.
As a result, seasonally adjusted vehicle sales increased by nearly 11 per cent to 13.1 million units, the highest level since 2007, a sign that recession fears may be exaggerated given the weight of the industry in the United States economy. Alongside the positive news from the auto-industry, the report on US factory activity in September also showed a stronger than expected increase.
The upturn in the US auto industry is important to the aluminium industry and hence bauxite producers like Jamaica since the metal is a major material used in vehicles.
Customers were driven by cheap financing and encouragement to replace ageing vehicles to trade in for new models.
The average age of vehicles on US roads which now stands at almost 11 years is two years older than at the onset of the recession in 2007, as consumers have postponed replacement of older units due to economic uncertainty and high indebtedness.
Dop in sales
In the process, US vehicle sales had fallen from a peak of over 17 million units in 2007 to under 10 million units at the deepest point of the recession in 2009.
US auto-giant General Motors, which has emerged powerfully from a government-brokered res-tructuring and bailout, registered robust sales growth of 20 per cent in September while Chrysler, another big beneficiary of government support, saw its sales jump by 27 per cent. Ford Motor Company which was the least affected by the recession with the strongest financial position recorded a 9.0 per cent increase.
With these buoyant sales figures, the three domestic automakers were able to move their market share to 48 per cent up, from 45 per cent in August.
US domestic automakers have been benefiting from the dislocation suffered by their Japanese competitors whose supply systems have been severely disrupted by the March earthquake.
Both Toyota and Honda, the leading Japanese automakers operating in the US, experienced declines in the US market in September with vehicle sales dropping by 18 per cent and 8.0 per cent, respectively.
Nissan which has recovered faster did, however, post a 25 per cent increase in its sales.
While US auto sales continue to recover, the situation in other industrialised countries is worsening with car sales in Europe dropping significantly.
In Spain and Italy where the financial crisis and sovereign debt problems are escalating with recent credit downgrades reinforcing investor uncertainty, car sales in September slumped to their lowest level since 1996.
Sales also fell in France, Europe's second-largest economy.
Apart from the demise of Lehman Brothers, there was no more powerful indicator of the severity of the US financial crisis of 2008 than the near collapse of General Motors.
As the auto-giant rebounds, the question is whether it can regain its former place as symbol of US industrial supremacy. In other words, could GM rise to again fit the billing of Charles Erwin Wilson, a former CEO and US secretary of defence, that "what was good for the country was good for General Motors, and vice versa".
The company is well positioned as the leading producer in China which overtook the US in 2009 as the world's biggest market. And with Toyota having been tripped up by quality issues as it raced to grab the title of the world's largest automaker, it is making up ground fast particularly in the US. Whether it can sustain the conversion of its design and production system to meet the shifting demand pattern that is more concentrated on medium-size cars will be crucial. How it performs in the technological race to meet stiff, new fuel economy standards in the US will also be decisive.
At the height of the recession in 2009, sales had fallen to around 10 million units and at that point the US was overtaken by China as the biggest market for automobile sales.