Bust puts brakes on Mo­tor City

The West Australian - - WEST BUSINESS - Keith Naughton, David Welch and Gabrielle Cop­pola

Th­ese should be boom times for De­troit. Un­em­ploy­ment is at a half-cen­tury low, petrol is cheap and car sales in the US were near record lev­els last year.

Yet Amer­i­can car mak­ers are clos­ing fac­to­ries, cut­ting shifts and lay­ing off thou­sands of work­ers. The in­dus­try is be­hav­ing like a re­ces­sion has ar­rived.

In one seg­ment of the mar­ket, it has.

De­troit is in the grips of a car re­ces­sion marked by the col­lapse of de­mand for tra­di­tional sedans, which ac­counted for half the mar­ket just six years ago.

Buy­ers have made a mass ex­o­dus out of clas­sic fam­ily cars and into sport util­ity ve­hi­cles that of­fer more room and, th­ese days,com­pet­i­tive fuel econ­omy.

Fa­mil­iar sedan mod­els such as the Honda Ac­cord made up a record low 30 per cent of US sales last year, and things will only get worse.

Sales of the pas­sen­ger-car body style that has dom­i­nated the in­dus­try since the Model T will sink to 21.5 per cent of the US mar­ket by 2025, ac­cord­ing to re­searchers at LMC Au­to­mo­tive, rel­e­gat­ing sedans to fringe prod­ucts. That leaves car mak­ers with ex­cess fac­tory ca­pac­ity that can turn out about 3 mil­lion more ve­hi­cles than buy­ers want.

And over­ca­pac­ity is pre­cisely what spurred losses the last time a re­ces­sion hit the in­dus­try.

“You could clas­sify this as a car re­ces­sion,” Jeff Schus­ter, se­nior vice-pres­i­dent of fore­cast­ing at LMC Au­to­mo­tive, said.

It is a sit­u­a­tion that prom­ises to put a damp­ener on the North Amer­i­can In­ter­na­tional Auto Show in De­troit this week.

The over­ca­pac­ity plagu­ing Amer­i­can car mak­ers is the equiv­a­lent of 10 ex­cess plants, which would ac­count for at least 20,000 jobs di­rectly, and thou­sands more as it rip­ples through the sup­pli­ers and sup­port ser­vices to the mas­sive in­dus­try.

“GM has taken some ac­tions, but they still have some wellun­derutilised plants,” Mr Schus­ter said.

“So we may not be done with this yet.”

One strat­egy for deal­ing with the col­laps­ing car mar­ket in the past has been to stuff un­wanted sedans into rental lots and other com­mer­cial fleets.

That has only de­layed to­day’s ca­pac­ity cri­sis.

Those lower-profit fleet sales have in­flated the mar­ket, keep­ing US ve­hi­cle de­liv­er­ies above 17 mil­lion for the past four years, even as sales to in­di­vid­ual re­tail cus­tomers peaked three years ago.

“The car re­ces­sion and the re­tail re­ces­sion have al­ready ar­rived in the sense that re­tail sales peaked in 2015 and have gone down ever since,” Mark Wake­field, head of the au­to­mo­tive prac­tice at con­sul­tant AlixPart­ners, said.

“Cars have crushed.” just been

Pic­ture: AP

The 2020 Ford Ex­plorer un­veiled at Ford Field, the home of the De­troit Lions NFL team.

The 2020 Cadil­lac XT6.

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