May 17, 2021

Economix: The Auto Industry, Stuck in the Slow Lane

On the assembly line at a Ford transmission plant in Sterling Heights, Mich., last month.Carlos Osorio/Associated PressOn the assembly line last month at a Ford transmission plant in Sterling Heights, Mich.

Many of those grasping for a sign of economic optimism these days have pointed to the auto industry. The argument is that as supply chains come back on line following the Japanese earthquake and tsunami, more automobiles will be available for sale to consumers who have been waiting for cars to arrive.

But don’t expect a roaring comeback yet. A report released on Wednesday by AlixPartners, a business consulting firm, projects modest sales growth for the foreseeable future. The report forecasts that United States auto sales will reach 12.7 million units this year, up from the 11.5 million of 2010, but still far below the 16-million-plus that the industry regularly posted in the mid-2000s. AlixPartners forecasts 13.6 million sales in 2013, and does not project that the industry will get back to its peak before the recession “in this current cycle.”

According to the report, several factors are restraining growth in car sales. Unemployment remains high and housing values are depressed, making it difficult for families to tap housing wealth for car purchases. Historically, the report found, one in five vehicles sold has been financed by an appreciation in a car buyer’s home value.

And in a survey of 1,000 Americans by AlixPartners, 83 percent said they had delayed the purchase of a vehicle or planned to wait another year before buying a car.

John Hoffecker, managing director at AlixPartners, said the level of sales before the recession was unsustainable.

“Many people were thinking that was the norm,” Mr. Hoffecker said. “And our view was that it was not actual demand.”

Instead, he said, sales were buoyed by easy financing by carmakers and rapidly appreciating home and stock values. What is more, he said, automakers did not pay enough attention to their cost structures when selling cars, sometimes at a loss.

On the positive side, said Mr. Hoffecker, American automakers have already regained their profits. And future sales will be fueled by population growth in the United States as well as growing demand in developing markets.

The bad news is that the depressed level of auto sales will not help all the laid-off autoworkers get back to work. While engineers and sales representatives have been rehired to levels before the recession, Mr. Hoffecker said, production labor “is not going to come back any time soon.”

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