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Auto Focus

By Melissa Anderson
Vice President, IRN Inc.
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The auto industry is plugging along pretty well, considering that it has continued to be dogged by external crises and challenges this year. If your frame of reference is the 16 million in sales that the industry enjoyed in 2007, then you are certainly not going to be happy about the current level of U.S. sales. We believe that most people within the auto industry are looking back to the trough of 10.4 million light vehicles sold in 2009, though, and feeling grateful to be coming out of that part of the cycle.

Vehicle sales through the first half of the year were affected by (or perhaps “afflicted by” would be a better term) another gas price run-up to the $4 range, issues with vehicle availability due to the Japanese earthquake and tsunami, and slower-than-anticipated economic recovery. Still, the U.S. light vehicle market hit 6.3 million units, almost 13 percent above the same period a year earlier. The month of April turned in the best performance with a seasonally adjusted annual rate of 13.3 million units, but May and June tapered off from that selling rate. The mixed trend engendered plenty of debate about what the rest of the year will look like.

On an individual automaker basis, the January-June period told varying stories. Hyundai-Kia is on a roll. It had the biggest comparative improvement, although from a smaller base, with sales up 26 percent in the first half of 2011 vs. 2010. General Motors was up more than 17 percent compared to year-earlier sales, so it beat the overall market. The Chevrolet Cruze and Malibu were very strong, as was the new Buick Regal. The cars were the stars for GM; pickup truck sales are still constrained by the slow housing market. Ford sales were up 12 percent over the prior year, thanks in part to its Fiesta, Focus and Fusion cars. The ramp-up of the new Focus held production back and probably robbed the company of some additional sales. Chrysler had a phenomenal six months, with sales up by 21 percent now that it has been able to introduce some new products (e.g. Grand Cherokee, Jeep Compass) after a dry 2009 and 2010.

Looking at the Japanese Big Three, Nissan turned out to be the best positioned coming out of the tsunami devastation; its sales were up 14.7 percent year-over-year in the U.S. for the first half of the year. Honda was only 1.6 percent over the first half of 2010, after a strong start in the first quarter. It was the Japanese automaker whose operations were most disrupted by the natural disaster in that country, leading to an inability to produce enough vehicles to serve the market. Toyota suffered in similar fashion, and its U.S. sales were down 4 percent as it struggled to rebuild its supply chain and assembly facilities in Japan and feed its N.A. facilities with affected parts.

The latest sales report for the month of July showed improvement from May-June, but there is still a certain amount of handwringing in certain quarters. From our perspective, the auto industry outlook is reasonably positive for the remainder of the year, with the second half being at least as robust as the first six months in terms of unit volumes. There is no question that some aspects of the economy are concerning, but as IRN’s vice president of forecasting Tracy Schneiter said in a recent report to subscribers, America’s tendency to monitor its pulse every few minutes needs to be kept in check during this recovery period. The North American vehicle production data shows that we are only modestly off the level of the pre-downturn quarters in 2008, and IRN’s light vehicle production forecast reflects an upward trend. The economy and the auto industry are not bouncing back as quickly as we would like, but the trend is positive and has further upside potential.

Lacey Plache, chief economist of Edmunds.com, says that we could still see a virtuous cycle develop in which auto sales help fuel a labor market recovery, which then supports more growth in auto sales. We hope to see that occur, but if consumers are made to feel too uneasy, it will be harder for them to take that step into the new car market. The news media has a great deal of power today in the form of the choices they make about what to emphasize and how to portray it. Our suggestion to consumers is to be sure to watch the news with a critical eye or else just turn off the television and go out for a ride. Your local auto dealer will appreciate it.

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