Big 3: How the U.S. auto industry turned things around
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TEXT OF INTERVIEW
BOB MOON: Old habits die hard. So guess which sold better this year: Compact cars and hybrids, or were there more trucks and SUVs bought in the U.S. in 2010? Edmunds.com says it was the latter.
But, that might not necessarily mean consumers are gravitating toward bigger vehicles again.
Edmunds reports a lot of those truck and SUV purchases were made by contractors who had put off buying new work vehicles.
Alisa Roth tells us that’s helped turn around
the fortunes of U.S. automakers. She covers the industry for Marketplace, and joins us from our New York bureau. Greetings.
ALISA ROTH: Hello.
MOON: What is the state of the auto industry now?
ROTH: It’s pretty good, but you really have to look at the context: 2009 was a disaster. I talked to Kirk Ludtke, he follows the auto industry for a dealer-broker firm in Connecticut. And this is how he put it.
KIRK LUDTKE: Sales are up from last year, but they’re still nothing to write home about.
So he’s guessing car sales this year will be something more than 11 million, which is great compared to last year, again. But until the financial crisis, annual sales were more like 16-17 million vehicles a year.
MOON: I’m guessing that there are some auto workers who are writing home about this. It’s all relative, right? What happened to turn things around?
ROTH: Well there are a couple of things. One is the so-called pent-up demand. There were people who didn’t buy cars during the financial crisis cause they didn’t have a job or they were worried about not having a job, or whatever it was. And now they’re going out and they’re actually buying cars. So that’s one thing. Another thing is that the Big Three are making cars that people really want to have. The Jeep Cherokee, which has been redesigned, has been selling well. The Ford Fiesta, which is a little, small fuel-efficient car, that’s been selling quite well.
The other thing is that the car companies have really done what the industry calls right-sized. They’ve cut workers, they’ve closed factories, so what really doing is they’re making fewer cars, but they’re making more profit and they’re selling more of the cars they’re making at a profit. The other thing worth mentioning is that with the bankruptcy, GM and Chrysler both got to wipe out all their bad debt, and really just focus on restructuring and building cars.
MOON: Has this been uniform across Detroit’s Big Three? How are the Big Three doing?
ROTH: Well with varying degrees, they’re all doing pretty well considering. GM, of course, had the IPO this year, which got a lot of attention. The company itself says it still needs to work on its European market, but it’s doing pretty well. Ford has lots of great cars, great trucks that people really want to buy. And it’s been cleaning up its balance sheet, which as you know had a huge amount of debt and it’s been paying that off. And Chrysler, which is sort of the question mark here, is also doing reasonably well. It’s at a low point of its product cycle, that is that it doesn’t have a lot of great vehicles to send out on the market right now. But some of the revamps, as we were just talking about, are selling well. And next year it’s going to start getting new cars from Italy, which a lot of people I’ve talked have said should do well — small, fuel-efficient, European cars.
MOON: Well let me put you on the spot then. Can we say the bailouts worked?
ROTH: If the idea is that we needed to keep the auto industry going — to save the economy, to save this icon of the American economy or however you want to think about it — then yeah, it was a whopping success. If you felt from the get-go that the industry was not doing its job properly for years and shouldn’t be rescued, then I guess not.
MOON: Well, one thing we do know, though, is that the auto industry does have a future in this country now. So let’s look down the road: What does the future look like?
ROTH: Well, it depends in some measure at least on how the economy does. If things continue to be slow, or get worse, then we could be in trouble. Here’s what Kirk Ludtke had to say about it.
KIRK LUDTKE: You know, this is as you know a large, discretionary purchase, so there’s no guarantee that auto volumes are going to recover to what we think will be the new normal. But at this point, we’re starting to see some pretty consistent progress.
And he seems to think that things are going things are going to continue to be pretty good. Car sales, he expects, are going to pick up next year and again the year after. It’s just a question of what becomes that new normal, as he said.
MOON: Yeah, as we said, it’s all relative. But I’ll take that as good news, and I could use some. Marketplace’s Alisa Roth, thank you.
ROTH: You’re welcome.
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