<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=192888919167017&amp;ev=PageView&amp;noscript=1">
Thursday, March 28, 2024
March 28, 2024

Linkedin Pinterest

U.S. automakers reach unprecedented milestone

The Columbian
Published: June 2, 2014, 5:00pm

SOUTHFIELD, Mich. — A half-decade after the near-death of American automaking, the Detroit Three have reached an unprecedented milestone: They’re boosting sales while remaining consistently profitable.

May U.S. auto sales numbers, released today, are projected to show Americans are continuing to buy more cars. Vehicle deliveries in the United States may have risen 6.5 percent to 1.54 million, the average of estimates compiled by Bloomberg. Adjusting for seasonal trends, automakers are on pace to sell 16.1 million vehicles this year, according to the estimates.

General Motors, Ford and Chrysler are reaping the benefits after restructuring to shed brands, shut unneeded factories and gain greater flexibility in labor contracts. Their margins also reflect the financial impact of increased U.S. energy output, widely available credit and management’s resistance to the heavy discounting car companies long used to prop up sales at the expense of profit.

The result is a lineup of U.S.-made cars and trucks that compare favorably with vehicles made by Toyota, Honda and other foreign manufacturers — showing how far the industry has come since June 2009, when GM filed a government-backed bankruptcy one month after Chrysler’s Chapter 11 filing.

“Short of calling 2009 and bankruptcy a lucky break, it’s two different companies, different management, different products,” said Kevin Tynan, auto analyst for Bloomberg Industries. “It’s very easy for the consumer to look at it and say, ‘This is different; it was a different time and these cars are at least worthy of my consideration.'”

Testament to Detroit’s comeack is GM, whose sales may rise 6.5 percent, according to the analysts surveyed by Bloomberg. The company is growing even as it moves this year to recall 14 million vehicles in the U.S., including 2.59 million small cars no longer in production for a faulty ignition switch linked to 13 deaths — suggesting buyers see the flaws as a legacy of the past company, rather than a defining moment of today’s GM.

“There’s some risk associated with the recalls, but it hasn’t been evident in GM’s sales numbers so far,” said Jeff Schuster, senior vice president of forecasting for researcher LMC Automotive of Troy, Mich. “The jury is still out, but at this stage, it’s not derailing their momentum.”

Restructuring over the past half-decade gave GM and its peers more flexibility to make money even with fewer vehicles sold. The quick bankruptcy restructurings of GM and Chrysler also avoided sending shock waves through the industry’s network of suppliers that could have imperiled Ford or Toyota.

Now Detroit is producing some of the most competitive vehicles in a generation. Ford’s Fusion has been a critical favorite, closing the gap against top Japanese models in the competitive family sedan segment. Chrysler’s Jeep, with its updated Grand Cherokee and smaller Cherokee, is outpacing the robust growth of the SUV market.

GM, for its part, placed two Cadillacs among the best at avoiding crashes, according to a study last week by the Insurance Institute for Highway Safety — and also featured the only two non-luxury cars to make the list. One of the two, the Chevrolet Impala, was the first domestic car ever designated by Consumer Reports magazine as the U.S. market’s top sedan.

Chrysler, on the strength of accelerating Jeep and Ram truck sales, may boost market share with a rise in sales of 14 percent, the average of seven estimates. Ford, facing a comparison to a strong May last year, may slip 0.5 percent, the average of nine estimates.

U.S. auto sales exceeded 16 million a year from 1999 to 2007, peaking at 17.4 million in 2000. During that stretch, Ford reported losses in 2000 and 2001, as well as 2006 through 2008. The old General Motors Corp. lost money from 2005 until its bankruptcy. Chrysler at the time was part of DaimlerChrysler and didn’t report unit results.

When the companies did make money, Tynan said, much of it was generated by the financial arms: Ford Motor Credit and GMAC.

“If you look just at automotive operations, it’s not even close,” he said of today’s more-sustainable industry.

Now, Chrysler provides income to support parent Fiat. Ford is coming off of record North American profits. GM reported a first-quarter net income, despite $1.3 billion in recall- related costs.

Plenty of challenges remain, including the arrival of upstarts like Tesla Motors’s sleek, electric Model S and Google’s steering-wheel-free driverless car.

More immediately, Detroit must navigate the rising tide of recalls that could threaten freshly rebuilt reputations. Total recalls in the U.S. have reached almost 23 million, the most since 2004’s 30.8 million. And June has just begun.

Even with recall-related risks and growing competition from the likes of South Korea’s Hyundai and Kia Motors, the Detroit Three automakers are as capable as they’ve ever been in one of the world’s most fiercely contested industries, said Harry J. Wilson, a member of President Barack Obama’s Automotive Task Force that led GM and Chrysler through bankruptcy in 2009.

“The Big Three are holding their own and actually increasing share,” Wilson, now CEO of restructuring adviser Maeva Group, said May 22 at a Brookings Institute forum in Washington, D.C.

The “huge cultural shift” that made Detroit’s transformation possible wouldn’t have happened without the crisis of 2009, said Sergio Marchionne, the Fiat chief executive officer who engineered Chrysler’s turnaround. He projects the combined Fiat Chrysler Automobiles will double profits in the next five years and boost global sales 61 percent, to 7 million vehicles, to take on the likes of Volkswagen and Toyota.

“When you’re broke, you change your ways a lot faster,” Marchionne said at the Brookings forum. An auto-industry visitor from Japan would be impressed by a Chrysler plant today, he said: “He’d take us as a serious threat, which he wouldn’t have done five years ago.”

-(Optional add end)-

Back then, Toyota was the second best-selling automaker in the U.S., behind only GM. Now Ford has reclaimed the No. 2 ranking, while Toyota has slipped to third. Chrysler has moved up to fourth, overtaking Honda, which held that position in 2009. Through April, the Detroit Three controlled 45.6 percent of the U.S. auto market, up from 44.2 percent in 2009, according to researcher Autodata Corp.

Toyota and Honda have had setbacks over the last five years that have reversed their once-relentless rise. Toyota had its own recall crisis, calling back 10 million vehicles in 2009 and 2010 for problems related to unintended acceleration. Both Japanese automakers lost sales in 2011 after an earthquake and tsunami rocked Japan and shut car factories.

The combined U.S. market share for Toyota and Honda fell to 22.9 percent this year through April, from 28 percent for 2009.

Toyota’s May sales may rise 7.5 percent, the average seven estimates, while Honda may gain 3.8 percent and Nissan Motor Co. may increase by 10 percent. Hyundai and Kia may see a combined 4.7 percent increase in May sales, the average of seven estimates.

Chrysler, for its part, may log its 50th straight month of growth in May, based on the analysts’ estimates. That would have been tough to imagine five years ago as Congressmen and pundits predicted the end of it and GM amid the worst recession since the Great Depression.

“The situation was so dire, I remember the talk being, ‘They’ll never come out of bankruptcy,'” recalled analyst Michelle Krebs of researcher AutoTrader.com. “Where they are today is far beyond what most of us could have imagined.”

Loading...