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Pent-up demand happily collides with new car models

Adam Allington Feb 4, 2015
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Pent-up demand happily collides with new car models

Adam Allington Feb 4, 2015
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Sales of new cars and trucks got off to a brisk start in January.  Low gas prices coupled with a resurgent U.S. economy are driving sales, particularly of high-end SUVs and pickup trucks. The world’s best-selling carmaker, Toyota, raised its fiscal-year forecast to a record high Wednesday, thanks to a weaker yen and strong U.S. sales.

The domestic auto market has been surging for some time. Nearly every carmaker selling in the U.S. has seen good things happen to its bottom line, partly because of operating changes made during the recession.

“The recession allowed the Detroit makers to catch up to in a lot of critical ways to their import competition, particularly the Japanese,” says Paul Eisenstein, publisher of TheDetroitBureau.com. “They were able to shed a lot of debt, they were able to drive down costs, labor costs in particular. They squeezed their suppliers, they got rid of unnecessary plants.”

Pent-up demand from buyers also became a factor as many automakers rolled out a bevy of refreshed models, particularly in the high-profit, SUV and light truck markets.

“They have product in the market that they don’t have to incentivize people to buy,” says Kristin Dziczek of the Center for Automotive Research. Carmakers aren’t slashing sticker prices like they used to. But Dziczek says pressure to keep manufacturing costs low couldn’t be higher.

Per-car costs are much lower now because of wage and benefit concessions by the United Automobile Workers.  But the Detroit Three will negotiate a new four-year contract later this year. And this time labor wants a bigger share.

“Workers are going to be looking for base wage increases and more money, and companies are going to be looking for cost containment and cost constraint,” Dziczek says.

Wage concessions have been key to a hiring surge at Ford.  On Wednesday, the company announced plans to add another 1,550 entry-level workers to help meet demand for its new F-150 trucks.

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