Finally, the automotive industry is on the rebound. Unit sales, exports, and even motor vehicle employment have made significant gains since their landmark free-fall that began in late 2007. The U.S. Department of Commerce, Economics and Statistics Administration reported that “the U.S. motor vehicle industry has made a remarkable comeback after experiencing an incredibly deep decline during the most recent recession.”
The depth of the fall was remarkable. Motor vehicle unit sales, which had been hovering around the 16 million mark from 2006 – 2008, plunged well below 10 million within the span of a year, hitting bottom in the first quarter of 2009. Since then, it has taken three years to climb back to 15 million units per year, a sales level that hasn’t been seen since the second quarter of 2008.
A Rocky Road
The rocky road to recovery, however, has been filled with pot holes leaving lasting marks on the automotive industry while redefining business relationships, dealer networks, and customer expectations.
Dealer Consolidations – As the number of new car and truck sales dramatically fell throughout the recession, auto dealerships felt the pressure. Dealers, fighting for more sales from fewer customers experienced savage competition and high promotional discounting, forcing many struggling dealerships to shutter their doors. According to a Wall Street Journal report, auto makers also cut hundreds of dealers during bankruptcy reorganization with Chrysler closing more than 780 and GM closing 1,650 dealerships.
OEM Misalignment – While production was bottoming out, consumer preference of car types was changing. Electric cars, hybrids, and compact vehicles with better gas mileage gained in popularity as drivers struggled to battle rising fuel prices. OEMs eager to capitalize on the frugality trend were out-positioned by imports that were already well established in the compact, sub-compact and mileage friendly models.
Light at the End of the Tunnel
Despite substantial changes, the automotive industry is seeing the light at the end of the tunnel. According to Edmonds, an online resource for automotive information, in their Auto Industry Trends for 2013 report, “The U.S. auto industry has shown sustained momentum the past few years, making solid progress toward recovery of pre-recession sales levels. Momentum will slow in 2013 but growth will continue.”
Stronger Dealerships – The same Wall Street Journal article confirms the trend toward stronger dealerships saying “wrenching consolidations behind them, surviving new car retailers enjoy higher sales and profits.” Automotive dealerships and dealer networks are stronger, more profitable with less competition. The same article reports that “the nation's 17,659 surviving outlets posted dramatic profit gains last year, according to a survey by consultant Urban Science. Its survey shows dealer earnings individually climbed by between 38% and 129% over 2009.”
New Technology and New Models – Automakers, responding to customer preferences, have introduced more new models and redesigns than ever before hoping to recapture lost market share. On their website, Enigma customer Ford declares, “No One Has More Cars with 40 MPG.” In a recent blog post, industry analyst Polk, reports that “GM is Relying on New Product Blitz to Halt Share Decline.” They say that “[t]he next 18 months are important for all OEMs, but perhaps more so for GM than for any of its rivals. From mid-2012 through mid-2014, GM will unveil the greatest array of all-new or re-designed vehicles in recent memory, if not in the company's history.”
While news about the state of the automotive industry is mostly optimistic, there are still some potential speed bumps on the road to recovery.
Continued OEM/Dealer Tension – Dealer consolidation culled the weaker dealerships from the network leaving stronger dealers less tolerant of strict OEM franchise demands. In a recent Forbes article, “Auto dealers push back on required renovations,” we see that, in particular, dealerships are resisting the edict to undergo costly facility updates citing thin margins and questionable ROI.
Dealers are also grading OEMs more harshly on their relationship skills. According to DealerNews.com’s 2012 OEM Report Card, “The marriage between franchised dealers and their vehicle manufacturers is a bit worse for wear…”. In particular “…dealers [were] critical of advertising co-op, Service department and merchandising programs, and in some cases OEM rep support”.
OEM Concerns – Gauging consumer preferences and expectations will continue to be a tricky endeavor. Americans are choosy when it comes to automobiles. Just as economy models are rolling off production lines, consumers are upping the ante and demanding more luxury options in those economy vehicles.
Additionally, the explosion of new models and options combined with new technological complexity of the vehicles themselves may take a toll on aftermarket parts and service profits. Producing, distributing, and maintaining updated service information and parts details will become even more exacting and challenging.
Those with nimble, updateable parts catalogs in place (such as Ford, which uses Enigma InService EPC) may fare better as car and truck redesigns continue to respond to fickle consumer preferences.
The U.S. Department of Commerce, Economics and Statistics Administration reports that “[w]hile both car and light truck sales have risen in the first quarter, car sales grew faster. In fact, sales of new cars made up 53 percent of all motor vehicle sales in the first quarter, the highest share since the third quarter of 2009. Higher gas prices have played a role here, as rising gasoline prices tend to shift sales toward more energy-efficient autos and away from light trucks.” Something that’s encouraging to auto both manufacturers and drivers alike.