Automotive Industry
Current automotive market
Current market make up of the global automotive industry:
Impact on the American economy
Not so long ago, the death knell of General Motors was being sounded by many economists. However, GM has rebounded, largely thanks to its international presence, particularly in Indian, China and Russia. “General Motors [has] appeared to regain its one-time perch as the world’s largest automaker. With 2011 sales of more than 9 million vehicles, it soared past Toyota, which plunged from first to fourth…as well as Volkswagen” (Eisenstein 2012). GM’s sales dominate developing world nations, which shows a great deal of promise for sustained growth given that these nations’ middle class populations are expanding and there are high levels of aspirational consumption. Many families have never owned cars and now desire to make their first purchase. The international market could prove more important for all Detroit car manufacturers than the domestic market.
GM sales rose 59% in India, 21% in Russia and 11% in China in 2011. “Just two years ago GM’s China sales were growing at an annual pace of almost 50%” but sales have been leveling (Shirouzu 2012). One problem is that Beijing’s city government has begun to more strictly limit the issuing of license plates for new cars: “it will issue a maximum of 240,000 license plates for new cars and microvans this year, about a third of the 750,000 expected for last year” to “combat congestion” (Zhang & Shirouzu 2012).
GM’s astounding growth globally demonstrates how merely looking at an automotive company in terms of its sales in its country of origin does not paint a complete picture of its financial health. Purchases of SUVs overall have been increasing in the developing world, once again contradicting the demonizing of American car-companies as unthinkingly churning out SUVs that no one needs or wants. GM was particularly criticized for its lack of creativity during congressional debate over the bailout. But SUVs are beloved by the rising middle class, particularly in China. “Sales of sport utility vehicles (SUVs) in China surged 101.27%” in 2010 (China’s SUV sales surge 101% to 1.33M units in 2010, 2012, In Auto News). Ford, eager to make up the ground it has lost to its American rival, has also begun to roll out several new brands (Klayman 2012).
Although some consumers in the developed world are concerned about rising gas prices, “in China, size matters…People want to have a car that shows off their status in society. No one wants to buy small” (Cha 2008). More Buicks are sold in China than in the United States. “A small car is for people with money problems or if they want it as an extra car to give to their wives, daughters or girlfriends to go buy food’ (Cha 2008). Originally it was predicted that China’s overcrowded streets would lead to demand for smaller cars, a prediction that proved to be erroneous. “As recently as a few years ago, automakers were betting that the future of the Chinese car market was in small vehicles that could easily maneuver the narrow alleyways of its ancient cities. Then they discovered a quirk in Chinese consumers’ tastes” (Cha 2008). Additionally, its attraction for women — China’s equivalent of ‘soccer moms’ — is also a strong draw (Klayman 2012).
Internationally, “GM’s sales results speak to ‘a very well balanced strategy’ the company is executing in emerging markets around the world (Shirouzu 2012). Rivals Volkswagen, Ford and Toyota have struggled, given “Volkswagen’s limited presence in India and Ford and Toyota’s struggle to penetrate the China market and boost sales” (Shirouzu 2012). But this does not mean that Toyota’s small vehicles can be entirely discounted. Overall, “the Toyota Prius going strong, etching its mainstream status by becoming the world’s best-selling car for the first three months of 2012… Finishing just behind the Toyota Corolla, which sold 300,800 units and the Ford Focus — which came in just behind its Japanese rival with 277,000 Focus sales — the Prius managed to finish third with a bronze medal deserving 247,230 in total global sales” (Iliaifar 2012, Toyota). In the developed world, concerns about gas prices remain omnipresent, which accounts for the surge in sales of the Prius. But long-term demand trends for hybrids remain questionable. Statistics show that even consumers who buy one hybrid seldom by another. And electric car demand has proven to be even more sluggish. Sales for electric cars the Chevy Volt have been less vigorous than hybrids, particularly given the Volt’s expense and the availability of cheaper alternatives. GM’s Chevrolet’s Cruze has almost the same highway fuel economy as the Volt and is nearly half as expensive. (Iliaifar, 2012, One is enough).
Thus, for the American automotive industry, results regarding trends in demand remain uncertain. On one hand, new markets abroad have saved the flagging fortune of the American Detroit ‘Big Three.’ “GM, Ford and Chrysler are all benefiting from less debt, a two-tier UAW wage structure and a steadily rebounding U.S. market. By contrast, European automakers are burdened by a glut of car-building capacity while new car sales plunge to the lowest level since 1995” (Bomey 2012). The developing world also offers untapped potential to sell larger SUVs, but it remains to be seen in such demand can continue at current levels, given its link to conspicuous consumption and the presence of new money in countries like China. But smaller vehicles also have a strong market presence, even though the future value of hybrids over the long-term has yet to be established. Although this may not be a happy statistic for American environmentalists, for the U.S. car market as a whole, trends seem to be pointing in a favorable direction. The much-criticized bailout seems to have worked. A weakened U.S. dollar has also driven many foreign manufacturers to transplant themselves in the United States, including Toyota, BMW and Hyundai (Eisenstein 2012).
The one dismal sign in terms of current demand is that of the European market, where sales are plummeting for almost all car manufacturers based in the region, both American and European, thanks to concern about the instability provoked by the Euro crisis. “Sales in France, the region’s second-biggest market after Germany, plunged 21%, while deliveries in Italy, the third-largest market, slumped 17%. ‘Carmakers too dependent on small cars and their national markets, as the French ones and Fiat, are suffering the most,” said Ian Fletcher, a London-based analyst with IHS Automotive. ‘They are basically trying to keep their heads out of the water'” (Ebhardt 2012). The weak European market could cause these manufacturers to further scale back sales of smaller cars in the future, which have traditionally dominated Europe. Only luxury brands such as Mercedes-Benz remained strong. In general, high-end consumption tends to be less affected by economic instability, given that wealthier consumers have more discretionary income, and less of that income is derived from salary (Menon 2012).
The international market will continue to be important for the American automotive industry, and it seems possible that American jobs, as well as jobs abroad can be fueled by trends in its favor. Although the Big Three have had to scale back in terms of the brands they showcase and workers they employ, their new, leaner operations have proven themselves to be profitable. However, the profits have been generated, not by American-driven consumption but by consumption in the developing world, which will likely influence the types of brands these car manufacturers design in the future.
References
Bomey, Nathan. (2012). Leaner North America leads way for GM. Detroit Free Press.
Retrieved:
http://www.freep.com/article/20120803/Business01/308030048/Leaner-North-America-leads-way-GM?odyssey=tab|topnews|text|Auto%20news
Cha, Ariana Eunjung. (2008). China’s cars, accelerating a global demand for fuel.
The Washington Post. Retrieved:
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/27/AR2008072701911_pf.html
China’s SUV sales surge 101% to 1.33M units in 2010. (2012). InAutoNews. Retrieved:
http://www.inautonews.com/chinas-suv-sales-surge-101-to-133m-units-in-2010
Ebhardt, Thomas. (2012). Renault, Fiat pace European car-sales drop as demand stalls.
Bloomberg. Retrieved:
http://www.bloomberg.com/news/2012-02-16/renault-fiat-lead-european-car-sales-drop-as-economy-shrinks.html
Eisenstein, Paul A. (2012). The American auto industry: A highlight in Obama State-Of-The
Union. Detroit Bureau. Retrieved:
http://www.thedetroitbureau.com/2012/01/american-auto-industry-a-highlight-in-obama-state-of-the-union/
Iliaifar, Amir. (2012). One is enough. Digital Trends. Retrieved:
http://www.digitaltrends.com/cars/one-is-enough-study-finds-that-most-hybrid-buyers-dont-purchase-another/
Iliaifar, Amir. (2012). Toyota Prius propels to top three in global car sales. Digital Trends.
Retrieved: http://www.digitaltrends.com/cars/toyota-prius-propels-to-top-three-in-global-car-sales/#ixzz22W7JhmZH
Klayman, Ben. (2012). Ford set to quadruple SUV sales in China. Reuters. Retrieved:
http://life.nationalpost.com/2012/04/23/ford-set-to-quadruple-suv-sales-in-china/
Menon, Jayashankar. (2010).Demand for cars drops. Automotive Horizon. Retrieved:
http://automotivehorizon.sulekha.com/demand-for-cars-drop-in-europe_newsitem_177
Shirouzu, Norihiko. (2012). Russia fills gap for General Motors as China sales slow. Reuters.
Retrieved:
http://www.reuters.com/article/2012/07/09/us-china-auto-gm-idUSBRE86809320120709
Zhang, Yajun & Norihiko Shirouzu. (2012). GM Sales in China rise 29% to top two million vehicles. Wall Street Journal. Retrieved: http://online.wsj.com/article/SB10001424052748704723104576061300353475660.html
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