Car Sales to Remain Strong
The auto industry is a bright spot in the economy as Americans pony up for new wheels.
Can U.S. automakers’ recent success last? Yes. Despite the wretchedly soft economy, the U.S. auto industry -- domestic and foreign brands -- is doing well, with U.S. sales headed to 13 million this year and more growth likely in 2012 and 2013.
SEE ALSO: Kiplinger's Auto Buying Guide
One reason: Years of pent-up demand from purchases deferred in 2007 through 2009, as the recession put millions of folks out of jobs. With cars on the road now averaging 10 years old -- up from 8.5 years in 2008 -- plenty of consumers will shell out for a new ride in the next few years. Consumers’ willingness to spend on extras helps, too. Buying such options as GPS navigation, leather seats and the like boosts the profit margins on the small, fuel efficient cars consumers demand.
Continued restraints on labor costs also help automakers’ bottom lines, of course. As profits get stronger, unions will grow restive. But they won’t get far in winning back concessions made during the bankruptcies of General Motors and Chrysler. Many of the changes reflect a permanent shift in labor’s muscle, not a temporary, strategic retreat.
Over the next few years, look for a slow, steady recovery from the bottom: Total sales of just 10.6 million vehicles in 2009, with about 5 million made outside the U.S. The market share of U.S. brands will keep inching up, toward the 50% mark, building on the bounce they got when rivals Toyota and Honda were badly zapped by supply disruptions following Japan’s earthquake. (U.S. brands were affected, too, but much less.) Improved vehicle quality and a sharper fuel efficiency focus will help.
Longer term, new fuel efficiency rules spell bigger challenges for the industry. Much tougher miles-per-gallon standards for automakers’ fleets start in 2017 and reach a rigorous fleet average of 54.5 miles per gallon in 2025. That will force big investments in new technologies and bring about a significant shift in the vehicle mixes produced.
For electric vehicles and hybrid trucks, expect a big boost. Producing them will yield manufacturers extra credit toward the ratcheted-up mileage standards, but only if skeptical buyers can be convinced that they are worth the extra cost -- And only if energy efficiency won’t sacrifice pickup trucks’ power and towing capacity. A recently announced Toyota-Ford partnership suggest the two companies think the task is doable.
A push for weight savings will fuel demand for higher-cost materials -- high-strength steel and aluminum, plastics, carbon fiber, etc. For manufacturers, that means finding the right balance of weight vs. durability, cost vs. energy savings. There’ll also be more reliance on computers and advanced software to run increasingly complex systems in vehicles and to design and manufacture tomorrow’s cars.