The car rules again
Despite high fuel prices and low employment expectations, North American consumers are once again flocking to showroom floors
Just four years ago, the Detroit Auto Show, now underway, was flirting with irrelevance. It had become a symbol of the decline in Detroit’s Big Three automakers, and of a weak North American consumer market whose whims global automakers might no longer feel the need to cater to. The action, both in advanced vehicle design and in sales volume, had been shifting to Asia and Europe for years. And come the Great Recession, which hit the U.S. hardest among world markets, and forced two of the Detroit Three automakers into bankruptcy, North America for the first time in auto history appeared to have lost its allimportance.
But the backdrop for this year’s Detroit extravaganza, including more than two dozen mostly well-received concept vehicles competing for attention with the novelty of Cirque du Soleil performers, is the resumption of a North American sales boom. U.S. sales clocked in at 14.5 million vehicles last year, not far shy of the high-water mark of 2007 prior to the onset of the Great Recession.
Indeed, so vibrant is the U.S. market that analysts at Credit Suisse calculate that the industry helped pull America out of mere recovery and into growth, accounting for close to one-third of U.S. GDP growth in 2012’s first half. And even conservative forecasts have North American sales increasing by another 600,000 vehicles next year. That’s still shy of the 16-million level of sustained boom times, pointing to significant remaining upside even with the recent gains.
The faster than expected industry turnaround prompted Magna International Inc., the Aurora, Ont.-based firm that is North America’s largest auto-parts maker, to this week boost its forecast of 2013 revenues by about 10 per cent. And Ford Motor Co., despite big losses in Europe, last week doubled its dividend to its highest payout in seven years.
That a revitalized General Motors Co. and Chrysler Corp. have emerged from bankruptcy as thriving enterprises is a well-known story. Chrysler is even outperforming Fiat SpA, its rescuer and new parent.
Less appreciated is that with a vast European market mired in recession, the U.S. market has regained its status as one in which every global automaker must strive to succeed.
Given the sad shape of Europe, in particular, it’s astonishing that global automakers, which count heavily on European sales, remain profitable. Indeed, shares of the 10 largest world automakers have gained almost 20 per cent in value over the past year. The chief reason the likes of Fiat, Volkswagen AG, Daimler AG, Renault SA and other European makers are prospering even as they struggle in their home markets is the renewed buoyancy of their North American sales.
And so a truism of the past halfcentury that seemed in doubt not long ago — that the U.S. and Canada together are the world’s most important auto market — continues to be central to the growth strategies of the major global automakers. Even assuming the massive Chinese and Indian markets can wean themselves off imported drivetrains, engines and other essential components from the West, they will for decades be preoccupied with domestic sales. And during that time, the high-end segment of their markets will be dominated by Western brands.
Even in Japan, which is no slouch in luxury brands, as Lexus, in particular, has shown, a Buick brand regarded as effectively dead in North America has found new life as a leading “aspirational” car for the large, lucrative market of middle-class buyers. (Buick would do better in North America, too, if only GM would more effectively market a vehicle that for years now has placed first or second on the benchmark J.D. Power quality surveys.)
Yes, this does seem counterintuitive.
North America is only gradually recovering from its worst economic downturn since the Great Depression, and a great many potential buyers would seem to lack the disposable income to make what typically is the second-largest domestic purchase, after housing. More than eight million Americans remain out of work, along with more than 400,000 Canadians. Consumer confidence in Can- ada and the U.S., while no longer slumping, remains far below normal as job-security concerns still weigh on those who are working. Fuel prices remain high. U.S. personal taxation levels are on the rise — along with tuition and health-care costs. The uptake for fuel-sipping hybrids and all-electric models — the one bit of genuine excitement the industry has offered in decades — has been achingly slow, due to typical consumer resistance to game-changing technology and the snail’s pace at which America’s 88,000 filling stations have been retrofitted to recharge car batteries. Last year was also a bad one for recalls, some 14.3 million in total, led by Toyota Motor Corp. (a staggering 5 million recalls) and Honda Motor Co. Ltd. (3.3 million). Neither GM nor Ford Motor Co. were spared recall embarrassment over everything from steering and suspension to ignition and power-steering glitches. Yet North American showrooms are the world’s busiest. The leading reason is pent-up demand. Last year’s booming sales occurred at a time when the average U.S. vehicle on the road was 10.8 years old, a near-record that invites comparison to the Depression and Second World War years. Remarkably, despite 2012’s strong sales, postponement of new-vehicle purchases has been so pronounced during the recent dark years that in 2013 the average age of vehicles on the road will actually rise to 11 years, which means automakers should be in gravy for some years to come, especially once the leading European economies recover by 2015. And consumers seem more forgiving than ever about recalls, especially when the automaker is a Toyota or Honda with a reputation for reliability. Meanwhile, the automakers’ offerings are increasingly tempting. Mass-market vehicles have never been more fuelefficient. (We’re not talking about Bentleys or Hummers, here.) Engineers from Stuttgart to Toyota City to Dearborn have found ways of making the traditional 130-yearold internal-combustion engine travel further on a tank of gas. You no longer need a costly Prius to save on fuel and be more ecologically correct. None of which is to suggest that the industry has quite embraced a 21st century of small vehicles boasting the greatest fuel efficiency of which engineers are capable. This week’s Detroit show features a return to bigness: big pickups, big crossovers, big utility vehicles. And to impractical sports cars: The show’s most ogled models are the revamped, overpowered Corvette and Audi RI. Cadillac’s new ELR at least makes a bow to the future, modelled on the extended range plug-in Chevy Volt. But do we really need its power sliding cover for its cupholders? dolive@thestar.ca