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The auto industry "come back" seems like nothing more than the fulfillment of pent up demand from when consumers weren't buying nearly as many cars during the last recession. That being said, I predict that the industry will face another downward spiral once this pent up demand is satisfied and the channel stuffing GM and Chrysler are doing catches up to them. I think this will start to happen sometime early next year which of course will be after the election, giving Obama the luxury of continuing to run on his "success" at bailing out the industry. That's my prediction, anyway. I'd be curious to know what the prevailng wisdom is at large.
...I predict that the industry will face another downward spiral once this pent up demand is satisfied
I'd be curious to know what the prevailing wisdom is at large.
Yep. Moderating supply relative to demand is tough!
If the slow and gradual reduction in unemployment continues and if the gradual progress in clearing out distressed real estate inventory (already well underway) continues, then the auto industry and most other industries should be fine. Those are big "if's" of course. Also, the percentage of less expensive cars and trucks sold will probably continue to rise because many people who lost jobs found new jobs which pay less than they had been used to.
If the slow and gradual reduction in unemployment continues and if the gradual progress in clearing out distressed real estate inventory (already well underway) continues, then the auto industry and most other industries should be fine. Those are big "if's" of course. Also, the percentage of less expensive cars and trucks sold will probably continue to rise because many people who lost jobs found new jobs which pay less than they had been used to.
But Unemployment is still higher than it was before the last recession and the so-called recovery is almost four years old, meaning the next recession is right around the corner. This next recession will start at a much higher base of unemployment than the last one did so just imagine how high the unemployment rate could go this time.
Also, cars are lasting much longer due to better quality, meaning cars don't need to be replaced nearly as often.
If the slow and gradual reduction in unemployment continues and if the gradual progress in clearing out distressed real estate inventory (already well underway) continues, then the auto industry and most other industries should be fine. Those are big "if's" of course. Also, the percentage of less expensive cars and trucks sold will probably continue to rise because many people who lost jobs found new jobs which pay less than they had been used to.
But Unemployment is still higher than it was before the last recession and the so-called recovery is almost four years old, meaning the next recession is right around the corner. This next recession will start at a much higher base of unemployment than the last one did so just imagine how high the unemployment rate could go this time.
Also, cars are lasting much longer due to better quality, meaning cars don't need to be replaced nearly as often.
Or an extended period of slow growth will persist.
Or 2013 will show improvements leading to renewed confidence.
Or the fact that the average age of cars on the road is 10 years will lead to an eventual upgrade cycle.
Are you talking about all automakers? Or just the "big three"?
You have to take into account that the US auto makers (Ford is a good example) have made great strides in quality and found ways to wring more efficiency out of their manufacturing process. Ford no longer builds as many cars as they can and sells at deep discounts near year end. Now they build to demand. That is a major change, for the positive, in the way they do business. The biggest headwind US auto makers face is weak overseas sales due to the economy and uncertainty in Europe.
The Ford lineup now includes Fiesta (29/40 MPG), Focus (28/40 MPG),Fusion Hybrid (47/47 MPG), Escape SUV (23/33 MPG),CMAX (47/47 MPG) and a full size Taurus that gets 19/29 MPG. I believe GM and Chrysler are almost as competitive.
These are major strides in quality, mileage and manufacturing. More importantly, they can now adjust output to meet demand more effectively.
Or an extended period of slow growth will persist.
Or 2013 will show improvements leading to renewed confidence.
Or the fact that the average age of cars on the road is 10 years will lead to an eventual upgrade cycle.
Are you talking about all automakers? Or just the "big three"?
You have to take into account that the US auto makers (Ford is a good example) have made great strides in quality and found ways to wring more efficiency out of their manufacturing process. Ford no longer builds as many cars as they can and sells at deep discounts near year end. Now they build to demand. That is a major change, for the positive, in the way they do business. The biggest headwind US auto makers face is weak overseas sales due to the economy and uncertainty in Europe.
The Ford lineup now includes Fiesta (29/40 MPG), Focus (28/40 MPG),Fusion Hybrid (47/47 MPG), Escape SUV (23/33 MPG),CMAX (47/47 MPG) and a full size Taurus that gets 19/29 MPG. I believe GM and Chrysler are almost as competitive.
These are major strides in quality, mileage and manufacturing. More importantly, they can now adjust output to meet demand more effectively.
I'm mostly talking about the "Big 3". Also, you must not have read yesterday's CNBC article which indicated that Ford tumbled in the quality rankings while Toyota surpassed them.
Another sign that the next recession and subsequent Auto Industry slump is right around the corner is that the conventional wisdom says otherwise.
I'm mostly talking about the "Big 3". Also, you must not have read yesterday's CNBC article which indicated that Ford tumbled in the quality rankings while Toyota surpassed them.
Another sign that the next recession and subsequent Auto Industry slump is right around the corner is that the conventional wisdom says otherwise.
I assumed you were talking about the big three. Your original premise was the economy would impact the auto industry, but you think the foreign auto makers will be fine?
The quality rating you refer to is Consumer Reports. A big factor in Ford's decline was owner dissatisfaction with its MyFord/MyLincoln Touch voice-controlled infotainment and communications system, which has been widely criticized as overly complicated. It was blamed for low Ford scores earlier this year in influential J.D. Power and Associates surveys.
Unfortunately, Ford may have been too aggressive in their rollout of MyTouch. This is just a due to growing pains with a new software based system, not a mechanical reliability issue. And definitely not a long term trend. One must read beyond the headlines.
Conventional wisdom has held for a very long time that the US auto industry could not compete with foreign automakers. My view is that they can and will rise to the challenge.
I've owned new Hondas from 1983 to 2001 models and new Fords from 1978 to 2010 models. I do my own maintenance and repairs. there used to be a huge difference in reliability. Now I see no difference and my Fords may be even more reliable than the Hondas. I currently own and maintain 3 Fords and a Honda. One of the Fords never even had a single warranty or non-warranty repair and is 5 years old.
I assumed you were talking about the big three. Your original premise was the economy would impact the auto industry, but you think the foreign auto makers will be fine?
The quality rating you refer to is Consumer Reports. A big factor in Ford's decline was owner dissatisfaction with its MyFord/MyLincoln Touch voice-controlled infotainment and communications system, which has been widely criticized as overly complicated. It was blamed for low Ford scores earlier this year in influential J.D. Power and Associates surveys. .
That's the one and however minute those problems seem, you can be sure that Honda or Toyota likely would have had those bugs worked out before the first car hit the show room.
Unfortunately, Ford may have been too aggressive in their rollout of MyTouch. This is just a due to growing pains with a new software based system, not a mechanical reliability issue. And definitely not a long term trend. One must read beyond the headlines.
Quote:
Originally Posted by shaker281
Conventional wisdom has held for a very long time that the US auto industry could not compete with foreign automakers. My view is that they can and will rise to the challenge..
Until the Big 3 move their headquarters South to a right to work state, I don't see the domestics competing effectively with the imports in a sustainable manner.
The auto industry "come back" seems like nothing more than the fulfillment of pent up demand from when consumers weren't buying nearly as many cars during the last recession. That being said, I predict that the industry will face another downward spiral once this pent up demand is satisfied and the channel stuffing GM and Chrysler are doing catches up to them. I think this will start to happen sometime early next year which of course will be after the election, giving Obama the luxury of continuing to run on his "success" at bailing out the industry. That's my prediction, anyway. I'd be curious to know what the prevailng wisdom is at large.
Hi RegQ--
I predict the next collapse of GM will happen around 2017 or 2018. Several reasons:
1) The taxpayer-financed bailout did indeed allow GM enough operating capital to get back on its feet. But in doing so, the UAW took the chance and froze out all rival unions from the new GM. Any plant that was not represented by the UAW - most egregiously in Moraine Ohio where the plant was represented by the IUE-CWA instead - remains closed to this day.
Meanwhile, the plant in Lordstown, Ohio - long known for its history of truly terrible cars such as the Vega, the Citation, Chevette, Cavalier, and Cobalt - is running at full speed again, because it's UAW.
2) GM has done nothing to resolve the overhead costs of UAW retirees, pensions, etc. Consequently, GM's competitive edge in labor costs is still significant, even though new hires are making much less.
3) GM has posted a profit since the bailout, that is true. But that is due to a perfect storm of the Fukushima disaster which cut Honda, Nissan, and Toyota down to size, while GM posts record profits because the Federal government is allowing the new GM - technically a new legal entity - to write off continuing losses from the old GM. Consequently, GM has not paid a dime in Federal corporate taxes since its bailout. That is why GM is posting a profit.
3a) The market knows this. That's why GM stock continues to underperform. It's currently stuck at $23 a share, well below its $38 IPO and a Texas mile away from the $55 it needs to get to in order for taxpayers to get their money back.
4) The fundamentals of the car market still haven't changed. Although engines across the board are getting more fuel efficient (yet power and performance is still increasing), GM is still miles behind the competition in many respects. The Toyota Prius debuted in Japan in 1997. It took GM almost a decade to rush a hybrid into production (the Malibu Hybrid in 2007, I want to say?), and its two-mode system is significantly less efficient than Toyota's HSD.
It shows in the market - today, Toyota sells three out of every four hybrids purchased in the US. GM's Volt is not remotely competitive. Even after a generous Federal credit it still costs over $40,000. Compare that to $24,000 for a Prius or $19,000 for an Insight. And once the battery's flat, it only gets 30-odd miles to the gallon on premium fuel. Nothing spectacular there. It's more of a curiosity than anything else, the economics of the Volt simply don't work for the average consumer.
And turning to other cars, GM cars still have the age-old build quality issues - knobs and buttons falling off, that truly terrible five-cylinder engine they used in the Chevy Colorado - it's just shoddy build quality. I remember going on a vacation back in ~2008 with the old man and we rented a brand-new Buick Lucerne and I promise you I merely pressed the button for the radio and my finger went straight through.
That said, GM/UAW has the support of the Obama administration and has plenty of cash on hand due to its profits from the past couple years due to paying no Federal taxes. It will take a minimum of five years, but there will be another reckoning.
Personally, I don't think GM will be competitive unless the immediately fire every employee at the Lordstown plant, bring in some Toyota guys, and educate a new workforce on quality control. Because GM has never taken the compact car market seriously, and Japanese companies have been eating them alive since the 70's in that market.
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