US Auto Market booms as Europe's suffers
The United States has again seen robust car sales growth, with annual sales in 2012 at a post-recession high, and this trend is expected to continue in 2013. According to automotive-industry tracking firm Autodata, US light vehicle sales (including passenger cars and light trucks) rose to 1.4 million units in December 2012, a 9% rise compared to December 2011. For 2012 as a whole, auto firms sold 14.5 million vehicles in the US.
That's a 13% increase on 2011 and the highest annual sales total since 2007.
Last year also marked the third consecutive year of annual sales increases of at least 10%, the first time the industry has chalked up such growth since the early 1970s.
Why the growth in car sales?
Economic growth, more jobs, easier credit and pent-up demand are the key drivers. Unemployment has eased. Home sales and prices have risen. Consumers are more confident.
In addition, the average age of a car reached 11 years old - people had held onto cars longer during the downturn, and with more confidence now and better credit availability they've decided to trade in and buy or lease new cars. Banks have helped by offering attractive financing deals.
The upward trend is expected to continue in the US in 2013; auto research and marketing firm Polk forecasts auto sales rising by 6.6% in 2013, to around 15.3m units, with North American production volumes forecast to rise by 2.4% to 15.9m.
So the auto sector is seen as being a leading sector for helping the economy recover. That of course depends on the US not falling off the fiscal cliff.
What's more, Obama's intervention to effectively rescue Chrysler and GM not only saved many jobs, but enabled the firms to restructure and emerge fitter and leaner.
Overall, Obama has put more emphasis on growth rather than austerity and people are more willing to go out and spend money. On the supply side, American car companies are in a better state because the government intervened.
In contrast, European carmakers are not able to rely on the same state backing. As Paul Everitt, chief executive of the UK's Society of Motor Manufacturers and Traders, told The Guardian this week "The key European markets are mired in a combination of uncertainty because of the general concerns about the eurozone and the wave of austerity that the individual governments are pursuing. We risk doing irreparable damage to our industrial capability."
Indeed, in stark contrast to the US, European car sales are down in most countries (the UK being a stand out exception as I've noted in blogs here at the Post). Much of this was been driven by a collapse in the periphery: in Italy sales were down by 20% for 2012 as a whole, and in Spain by 13%. Figures for Greece and Portugal for 2012 are also likely to be dismal.
It's 'Carmaggedon' as Fiat's boss Sergio Marchionne put it succinctly.
But during 2012, the malaise spread to the North, with France seeing car sales down by 14% for 2012 as a whole, and even Germany endured a fall of 3% over 2012. What was a periphery crisis has now spread to the core of Europe, with a toxic mix of eurozone crisis, austerity and recession forcing down sales - which are now down by 20% on pre-recession peaks.
Factor in some 25% over-capacity in the industry even before this most recent downturn, and you get some idea of the intense pressure being felt by the 'squeezed middle' of the industry (Fiat, GM, Peugeot, Renault, and Ford).
It's no wonder that Peugeot, GM and Ford have all announced plant closures so far, at Aulnay, Bochum, and Ghenk and Southampton respectively. Peugeot Citroën, for example, has been hit by falling sales in its home market as well as the periphery and has announced plans to close one plant and lay off some 10,000 workers. It recently needed a €7bn loan guarantee from the government for its finance arm - effectively a bailout.
I expect more plant closures from other firms to come.
Not surprisingly, most European auto firms are scrabbling around for sales, using discounts and special offers to keep production lines going, in so doing hitting profits. Opel, Peugeot, Ford and Fiat continue to bleed red ink, with Renault (which benefits from its links with Nissan and more sales outside of Europe) also now being squeezed.
Only the German firms of Volkswagen, BMW and Daimler are now making serious money. The VW juggernaut in particular keep chugging along, but even it saw sales of its core brand down by 25% in France, 15% in Spain and 36% in Italy such is the dire state of the market.
Meanwhile, the British car industry has been partly sheltered from the eurozone crisis by its strong premium car industry, with the likes of Jaguar Land Rover, Bentley and Mini benefiting from surging demand in emerging markets such as China. Witness JLR taking on another 800 workers at Solihull to meet high levels of demand.
But while the UK auto industry more generally has done well of late, the European storm is indeed starting to be felt here. Honda had anyway previously announced 4-day a week working for some workers, and has just announced 800 job losses - almost a quarter of its workforce - at its Swindon plant. The firm stated that "sustained conditions of low demand in European markets make it necessary to realign Honda's business structure."
In addition, GM has closed its Vauxhall plants at Ellesmere Port and Luton for a week and has gone to one shift at Luton, and Ford has announced the closure of its last remaining UK assembly plant.
As I have pointed out before, despite the recent 'renaissance' of the UK car industry, the longer the European slowdown continues then the more it will be felt here in the UK. At some point the government here may need to start thinking more creatively in terms of an industrial policy that puts a floor under capacity here. Think, for example, of the part-time wage subsidies that exist in Germany (and which have already been activated there in the case of GM).
Despite the auto industry's recent success here in the UK, dark clouds are looming on the European horizon. That's in stark contrast to what is happening in the United States.
Professor David Bailey works at Coventry University Business School
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The to be closed Ford plant in Belgium is in Genk, not 'Ghenk'.
The real reason car sales are higher in the US than Europe is not the run of the mill analysis trotted out here by an ivory tower blinkered denizen, but because cars are much cheaper in the US.
Prices are around a third less than in Europe. Add 20-25% purchase tax VAT on top, compared to typically 6-10% local sales tax in the US, and the gap grows more.
The hackneyed analysis here also omits that the US's population is growing very fast. 14m annual sales in 2012 is not as good as it sounds, compared to the up to 17m odd in the 2002-7 period, when real population in the US, with illegals and offspring included, is growing at up to 2% per annum.
Plus, the academic here omits to highlight that a large proportion of US cars are made in Mexico, under the NAFTA regulations. Paying people a fraction of the first-world country to the north, allows GM, Ford, Toyota, Nissan, VW and so on, to sell a typical 'C-segment' car like a Ford Focus, for $15-20,000, compared to equivalent $30-35,000 for the same product, made in Spain/Germany in Europe, by the same company.
Contrary to the image given here by the academic, Europeans aren't lazy or stupid, compared to their supposedly more go-getting US counterparts. Europeans are p*ssed off, rightly, with being charged top dollar, pardon the pun, for their life necessities, like a modest family car, whilst having their wage levels hacked down to near Mexican, former Communist eastern European, latterly almost Chinese levels, turbocharged by waves of immigration, willing to work for literally next to nothing, often whilst claiming benefits on the side.
The buyers in Spain, Italy, France, Portugal, Greece, and now Germany, have gone on strike. Why purchase a new €20k family car when your job is likely to go in this endless economic 'recovery', your house be repossessed, other essentials, like electricity, gas, food and fuel go up by sometimes 5, 10, 20% in one year? No, the continental Europeans are not the ones who are backward and in the doldrums, and in need of further taxing to pay for handouts to large private corporations, registered in foreign tax havens.
The Europeans are compos mentis. The UK is the crazed outlier. The British, like the Americans, have been systematically dumbed-down and fed propaganda by their govts. and media that the way out of debt and real collapsing living standards is to borrow and spend more, and have their govts. intervene more, and of course, hand more of the poorest taxpayers' billions to the elites to socialise their losses, like the bankers. Now the call goes up to help 'poor' PSA, and the private Peugeot family; next week the poor Tata trust fund? Come on, man, stop trotting out this threadbare eyewash.
The system, as represented in the US and UK, with their growing new car sales figures - yippee! - is unsustainable. Have you thought what would happen to sales of new cars when, not if, the US dollar slumps, by up to 50%, as it will, when the US de facto defaults, not just QE-ing to eternity as it has been doing, or/and the credit rating agencies act in concert to downgrade its rating?
What will happen to those now from $15k Ford Focuses, $30k seven-seat Ford Explorers, and current massive bargain to European eyes, BMW 328is, for $35k, compared to $50-60k equivalent in UK and Europe, the ones keeping BMW and the Quandt family afloat, with billions of euros profit, currently selling like hot cakes at over 10,000 units a month, when the dollar is devalued? That's right, the American working poor will be in the very same boat as the now gone on buyers strike, derided European working poor. They'll be expected to pay nearer $30k for a modest family runabout, on wage levels of $7/hr, stacking Walmart shelves, whilst meeting $5+/gal. gas and 15 cents per kilowatt-hour electricity, just like their characterised as deadbeat bums European counterparts.
Henry Ford, the great man of the auto industry, knew you couldn't have a sustainable business and industry if you didn't pay your workers enough of the pie, to allow them to buy the very mass-market products they made; and not with hinky finance, that made them eternal debt slaves, working for the bank, not Ford.
We'll see how long this 'miracle' of growing sales in the US and UK lasts. The US is headed for debt default, never mind fiscal cliff theatrical nonsense, and the UK's budget deficit is increasing again, not being reduced, as the poorly paid 'new 1 million private sector jobs created' workers have their wages subvented from public funds, effectively a massive subsidy for Tesco et al.
And the public sector tenured academic wants more spending, more borrowing, more intervention, and more bailouts for the 'too big to fail'. Dear Lord, save us from these creatures!
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