From Staff Reports
Auto sales in North America will be challenging in the year's first half, and will likely require automakers to resort to sales incentives, several top executives told journalists at the Chicago Auto Show yesterday [Wednesday].
"We think the first two quarters are going to be tough," although sales should start to improve in the third and fourth quarters, Don Esmond, a senior vice president for Toyota Motor Sales USA Inc., told Reuters.
According to the news service, Esmond's views mirrored comments made earlier in the day by Troy Clarke, the head of the North American unit of GM . Clarke said the first half of this year looks "kind of icky, to be honest" for carmakers in America because consumers are feeling the squeeze of a slowing economy.
Speaking to journalists at the auto show following the unveiling of the new Chevrolet Traverse crossover vehicle, Clarke said the "next few quarters are going to look kind of rough" for the car-making industry in the U.S. market.
However, the industry has already lived "through six quarters of declining auto markets," and conveyed optimism that sales activity would accelerate in the year's second half.
So even if the industry gets "to eight quarters of this … hey, there's a bottom to this someplace," Clarke said.
These economic realities will manifest themselves in the form of incentives. A "prudent" use of sales incentives might be needed to jumpstart sales in the year's first half, although the use of these as a sales tool would decline in the second half so long as sales accelerated, Clarke said.
Clarke said GM is starting to see the beginning of some pent-up demand in the U.S. auto industry after six quarters of contraction and said he saw "reasons for hope and reasons for optimism" in December sales numbers.
The annualized U.S. auto industry sales rate for the second half of 2008 could range from 16 million to 16.5 million vehicles, after the use of some incentives kept sales running in at an annualized rate in the low-15-million-range, according to Clarke.
Clarke said the second half could look a lot better if…
- that there is pent-up demand
- the U.S. Federal Reserve rate reductions have the desired effect
- the housing market turns around and
- Bush's economic-stimulus package fuels an upturn in consumer spending.
"How quickly does it improve, and where does it go?" Clarke asked. "That remains to be seen."
Global Battle for Auto Sales
If he had a choice between having GM remain the world's No. 1 automaker – but be less profitable – or be a stronger and more profitable player occupying the second spot in the global pecking order, GM Vice Chairman and Product Chief Bob Lutz said he'd prefer the latter.
"I would rather be a highly profitable, great shareholder value, great reputation, growing No. 2 than a struggling No. 1," Lutz told reporters after a speech at the Automotive News World Congress.
GM sold 9.37 million vehicles worldwide in 2007. Toyota's sales were about 3,000 shy, according to preliminary company figures.
"I would almost say that being No. 2 for awhile – if it happens, and it well may [for] they are in a lot of areas that are growing faster than we are – [well], it may be a powerful motivator for GM employees," Lutz said.
China: The New Frontier
After a year in which Toyota saw its share price plunge 21.5%, and its rivalry with GM intensify, the Japan-based carmaker is trying to recapture its momentum by investing heavily in China.
this weekthat Toyota plans to set up a new automobile plant in China's Jilin province – its eighth production plant in the country. Operations are expected to start in 2010, and the plant's production could be as high as 100,000 vehicles a year.
BizChina also reported that Toyota is opening. Based near Shanghai, it will develop and test drive models specifically for Chinese consumers.
Toyota's aggressive steps are aimed at getting a better footing in China's exploding automotive market, the next primary battleground for the global automotive industry.
But so is GM.
In late October, GM announced plans for a $250-million research-and-development center in Shanghai, the East Coast financial center on China's mainland. The center will develop eco-friendly technologies, including alternative fuels, hybrid cars, and more-efficient powertrains, including those utilizing new technologies.
The R&D center will also serve as headquarters for GM's China and Asian-Pacific operations. The main goal of the venture will be to help alleviate China's surging pollution problems, while also capitalizing on the fastest-growing auto market in the world.
China has already become the world's second-largest auto market after the United States. In the first nine months of 2007, there were 4.58 million vehicles sold there, a 23.84% increase from a year ago. GM, through the joint venture it formed with Shanghai Automotive and Liuzhou Wuling Automotive Co., back in 2002, was aiming to sell 1 million vehicles in China for the first time last year. That would represent a 20% jump from the 830,000 sold in 2006.
On Monday, Toyota posted a 7.5% increase in profits for its fiscal third quarter, ended Dec. 31. Even more telling: Toyota's quarterly sales advanced 5.3% while GM's grew 4.8%.
GM's China strategy is very different than Toyota's. The U.S. carmaker – which controls such key brands as Chevrolet, Buick, Pontiac and Saturn – operates seven joint ventures in China, allowing the company to diffuse risk and save money on labor and production costs.
However, GM's 18.5% sales growth in China last year was its slowest in that market for the past five years,, prompting the company to seek a larger share in the aforementioned joint venture.
GM also plans to introduce several models in China this year.
News and Related Story Links:
- Web Site:
Chicago Auto Show
- Money Morning:
Emerging Markets Drive Toyota's 7.5% Profit Growth
- Google Finance:
Shanghai General Motors Co. Ltd.
- Money Morning Special Investment Report:
Going Green and Going Global: The Future of the Automobile Industry
- Money Morning News:
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