Capital News Service

of the Michigan State University School of Journalism

Experts see glimmer of hope for auto industry

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By VINCE BOND Jr.
Capital News Service

LANSING- It’s tough to keep an old champ down.

Even though the auto industry has seen better days, some analysts believe it’s too early to count out the region’s once-formidable economic backbone.

Meanwhile, new data suggests there are still signs of life.

According to the Chicago Fed Midwest Manufacturing Index, auto sector production in the Midwest increased 5.5 percent in September and 1.8 percent in August. The index defines auto sector production as “plastics and rubber products” and “transportation equipment.”

Nationwide, auto-related production rose 3.4 percent.

The index tracked data from Michigan, Indiana, Illinois, Iowa and Wisconsin.

Dennis Virag, president of Ann Arbor’s Automotive Consulting Group Inc., said the results are likely due to auto companies replenishing their inventories after the federal Cash for Clunkers program boosted demand.

Virag said the domestic three — General Motors Corp., Ford Motor Co. and Chrysler LLC — can survive the recession if they monitor inventory and avoid overproduction.
Fuel-efficient technology also will be key and the company that innovates will come out on top when the industry rebounds, Virag said.

The group projects that in 2015, automobile sales in the U.S. could flirt with the 20 million mark, a significant jump compared to 2008’s 13.2 million.

Virag compares the current economic lull to the recession of the early 1980s, when car companies battled to stay afloat and eventually “came back stronger than ever.

“The auto industry will remain the anchor of the Midwest,” Virag said. “The industry has tremendous amounts of promise. Those people with the best technology will be the winners.”

Gone are the days where the Big Three controlled nearly 90 percent of the auto market, but the recent surge shows that profitability isn’t out of reach, said Bruce Brorby, senior associate dean of the University of Detroit-Mercy’s College of Business Administration.

Brorby said analysts are taking a wait-and-see approach, but he thinks the recovery has already begun.
If yearly U.S. sales can consistently reach 11 to 12 million, companies should see annual profits because they’ve already undergone the necessary restructuring, Brorby said.

“In terms of stimulating sales, it also triggered a response after the program ended. It got people thinking about cars again,” Brorby said. “The publicity started stimulating car sales. GM is expecting that they may have had their first year-over-year sales increase in almost two years and Ford may show a profit in the third quarter.”

Mike Johnston, vice president of government affairs for the Michigan Manufacturers Association, said that manufacturing will always be part of Michigan’s economic identity, whether it’s making auto parts or wind turbines.

Light-vehicle demand is projected to increase dramatically over the next three years, Johnston said.

While 10 million light-vehicles are projected to be sold in 2009, that number will rise to 11.6 million in 2010 and 15.1 million by 2012, Johnston said.

“I think as the economy evolves, you’ll see more hybrid and electrical vehicles,” Johnston said. “We’ve heard reports that the recession is over, and I think we’ve seen the bottom. We’re optimistic about the future of Michigan and manufacturing.”

Thomas Marx, director of the Center for Global Leadership at Lawrence Technological University, said he’s upbeat about the future of the industry and expects the “overall volume of sales to be very impressive over the next couple of years.”

Although companies may not see overwhelming success in 2010, Marx said he expects the Detroit Three to hit their strides by 2011 or 2012.

Marx said GM’s fall into bankruptcy forced the company to adjust burdensome “legacy costs” such as health care and high salaries.

At one point, GM spent $5 billion a year on health care alone.

Foreign companies like Toyota set the bar extremely high in terms of quality, so competition will continue to be stiff, Marx said.

“Demand doesn’t disappear, it’s postponed. As soon as the economy stabilizes and financing becomes more readily available, these people will be trading in their cars,” said Marx, who worked for GM for 28 years, holding positions in economics, government relations and corporate strategic planning.

People may put off car purchases momentarily, “but those sales come back with a vengeance when the economy starts to pick up,” Marx said. “There is huge pent-up demand.”

© 2009, Capital News Service, Michigan State University School of Journalism. Not to be reproduced without permission.

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