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As compact Hondas and Toyotas continue to crash onto the scene, U.S. automakers have largely failed to recognize what today’s car consumers need: an auto industry that is fast, flexible and efficient.
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Globally, about 53 million new cars have been sold this year, according to Scotiabank Group.
United States vehicle sales have consistently weakened in 2007, falling to an average of 16.1 million units through September, down from 16.5 million in all of 2006 and a peak of 16.9 million in 2004 and 2005, according to Scotia Economics’ latest Global Auto Report, released last week.
In September, U.S. auto sales continued to slip amid an industry slowdown sparked by economic uncertainty and massive production cuts at struggling U.S. automakers. The Big Three automobile manufacturers (Michigan’s General Motors Corp., Ford Motor Co. and Chrysler LLC) took a hit from planned reductions in low-margin sales to rental car companies, as they downsized operations to better cope with a steady loss of market share to rivals.
The Detroit, Mich., companies are under intense competitive pressure from foreign-based firms while enduring high labor costs at home. Ford and General Motors (GM) are both struggling to re-engineer all parts of their operations, from design to manufacturing to marketing in order to cut costs and regain market share.
While gas prices moderated during much of this year, they remain high enough to affect consumers’ car-buying decisions. Sales of heavy, gas-guzzling SUVs, for one, have lagged miserably. As such, Ford and GM have canceled production of some of their massive vehicles.
Another result of gas prices is that new vehicles are expected to set new records for average gas mileage in 2007, driven by improved technology and demand for fuel-efficient vehicles, the U.S. government has reported (via The Associated Press).
Moreover, Toyota Motor Corp.’s Prius hybrid car has seen remarkable demand. The automaker thus responded by raising the price and planning production increases. There has also been good demand for Toyota’s Lexus RX400h hybrid crossover.
Sales of hybrid vehicles and small cars are expected to set new sales records this year despite a sluggish U.S. auto market. Sales of pickup trucks and SUVs have largely declined due to high gasoline prices and the slump in the homebuilding industry, according to data based on Transportation Department analysis of sales estimates released in August. Honda Motor Co. is estimated to lead the way, averaging 39.9 mpg for its imported vehicles and 33.7 mpg for vehicles built in the U.S., while Toyota follows with 38.5 mpg for imported vehicles and 31.7 mpg for cars and trucks produced in North America.
Ford thus launched its first hybrids, and other carmakers such as GM were greatly encouraged in their own efforts to bring more hybrids to the market. Response to hybrids from U.S. automakers, however, “has been lukewarm at best,” Plunkett Research notes.
While Michigan’s Used-To-Be-Big Three struggle, Asian automakers are generally enjoying booming success, with Toyota and Honda at the forefront. In particular, Toyota is attacking mercilessly.
Toyota beat out GM for the first time in the first quarter of this year, selling 2.35 million units against GM’s 2.26 million units. Toyota very likely will have passed GM in global sales this year, ending GM’s 76-year reign as the world’s best-selling automaker. (Save for two periods when GM production faltered because of strikes in the 1970s and 1980s, the automaker had been on top since 1931.) On a global scale, the automaker plans to sell 10.4 million vehicles by 2009, up from 8.8 million in 2006, according to media reports in August.
Moreover, according to Plunkett Research:
South Korean makers Hyundai and Kia have established themselves as true, high-quality manufacturers with a growing global customer base. They will give the Japanese very tough competition. European manufacturers have challenges of their own. High costs, tough labor laws, daunting government regulations and a few disappointing model designs have hampered recent results.
Sales in Asian countries are booming, due in no small part to a burgeoning middle class in India and the rising affluence of Chinese consumers. (Ford said last week that its retail sales of vehicles in China rose 30 percent in the first three quarters from a year earlier to 149,455 units.) In the first quarter of 2007, China’s import and export value of automotive products amounted to US$13.361 billion, of which the imported value was $5.362 billion, up 18.46 percent year-on-year. The export value was $7.99 billion, up 36.30 percent from a year earlier, according to Research & Markets. From January to March 2007, 99,800 complete vehicles were exported, rising 59.32 percent over the same period of last year.
As such, automakers from all over the world are rushing to open plants and establish partnerships in China to produce cars both for domestic use and for export. And as China manufactures its inexpensive cars for the U.S. market, U.S. automakers are making intense demands on their component suppliers for lower prices — and “these suppliers are, in turn, looking to low-cost production in China,” Plunkett notes.
In fact, low labor costs (See below) and increasing product quality in China threaten auto plants located in high-cost nations such as the U.S.
On the shop floor, flexible factories are reducing man-hours. However, they are also cutting costs per car while offering a much wider range of choices for consumer customization. Today more than ever, car manufacturers and their suppliers are cooperating in the design and manufacture of new cars in ways that very well could revolutionize the entire process. (See: Working Smarter on the Shop Floor)
The parts manufacturing business in the U.S. is dismal, too. Delphi Corp, the giant supplier that was part of GM until 1999, has been in bankruptcy reorganization since October 2005, having lost nearly 4.6 billion in 2004 alone. The company hopes to exit bankruptcy by the end of this year, though a global credit squeeze that began in August is adding to the difficulty of that goal.
Meanwhile, due to automakers’ growing concern about the U.S. sales outlook, they are paring back production. The largest U.S. automaker is slashing fourth-quarter output 10 percent below a year earlier, reducing overall North American vehicle assemblies to an annualized 15.2 million units in the final months of 2007, down from more than 16 million so far this year, according to Scotiabank’s fall 2007 Global Outlook.
The U.S. alone has lost 3 million manufacturing jobs in the past three years, racking up an $800 billion trade deficit, according to industry statistics (via Automotive News).
Job losses in Detroit’s auto plants and at auto-parts makers have knocked labor-union membership; restructuring by those automakers has meant the loss of tens of thousands of jobs, waves of retirements and the closing of dozens of assembly plants and facilities. Recent labor strikes don’t seem to be helping. Japanese automakers, with few exceptions, have avoided organized labor at the nearly dozen U.S. assembly plants they operate.
Most comments on the blog attempt to assign blame to one or the other side. The reality is that both management and labor likely share blame for the decline of the U. S. car industry. And both had better be willing to “give back” in some way to construct a deal that can buy the companies and their workers some time to get their act together. Today’s car consumers and carmakers need an auto industry that is fast, flexible, efficient — and dedicated.
Earlier: Auto Industry Outlook: Sinking and Soaring
Resources
Automobiles and Trucks Trends
Plunkett Research, Ltd.
Global Auto Report
Scotiabank, Oct. 4, 2007
US auto sales slump amid slowdown, Toyota overtakes Ford again
Agence France-Presse, Oct. 2, 2007
2007 vehicles boost gas mileage levels
The Associated Press, Aug. 31, 2007
Honda, Toyota, Ford and Volkswagen Land the Most Vehicles at the Top of the Inaugural Automotive Environmental Index
J.D. Power and Associates, Aug. 31, 2006
Delphi Scales Back Financing Plan
by Terry Kosdrosky and Christopher Witkowsky
The Wall Street Journal, Oct. 3, 2007
Toyota aims to sell 10.4 million vehicles in 2009: paper
Reuters, Aug. 22, 2007
Ford Sales in China Gain Nearly 30 Percent
Reuters, Oct. 9, 2007
Global Outlook: More Of The Same — Only Different
by Warren Jestin
Scotiabank, Fall 2007
Experts: U.S. manufacturers undermine themselves
by April Wortham
Automotive News, Aug. 20, 2007
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Good article with lots of background to verify what is happening in the turbulent auto industry. I have just been talking to Linamar Corp. officials who are working hard to extend their regular base of customers to include Asian car makers.
American auto makers still refuse to give the consumers what they want.
The latest thing is the heat, air and ventilation controls. In the foreign cars one can choose fresh air or recirculated air and in either mode have the option of directing the air to their feet or their face or the windshield. The air conditioning compressor is turned on or off via a separate switch.
In an American car, if you choose recirculate, the air conditioning comes on and you don’t get to choose where the flow is directed. Consumers don’t care if the manufacturer thinks he knows air handling better than they do, they want full control of the system and the foreign manufacturers are giving it to them.