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2012 Will Be Pivotal Year for the U.S. Auto Industry

2012 Will Be Pivotal Year for the U.S. Auto Industry

By Jeff Youngs, March 05, 2012
This year may bring a return to some sort of normality for the auto industry in the Unites States, which in recent years has experienced the Great Recession, government involvement, $4-a-gallon gasoline, and several natural disasters in 2011, which impacted many Japanese brands. With a slow but steady recovery in the American economy, the restoration of normal production and supply lines for Japanese brands, a leveling off of gasoline prices, and an ample supply of potential customers who haven't replaced their aging vehicles, the consensus is for a gain in sales in the U.S. market for 2012-up from last year's 12.8 million units, which in turn was up 10 percent from 2010 sales.

Of course, even sales of 14 million units would leave the market a long way from the halcyon days of last decade, when automakers reached their most recent peak of 17.4 million units sold in 2005. At the same time, today's market has the potential to be more healthy and profitable for most automakers because excess capacity, costs and inefficiencies have been stripped out of operations by the last few years of turmoil.

A few dynamics will determine whether the U.S. market writes another positive chapter in a continued re-ascension, and what happens to the companies and products that make up the market.

Here is a look at the four most important dynamics:
Economic vitality: Over the last couple of years, U.S. auto sales have been recovering more strongly than the economy as a whole. This is in large part due to the continued effects of "pent-up demand" because Americans have been keeping their vehicles for record durations and at some point must begin replacing older vehicles.

Gasoline prices: When fuel prices spike as they did in 2008 and in late 2010 and early 2011, Americans hold off on purchasing new vehicles. If gasoline prices spike again at some point this year because of any combination of geopolitical and economic factors, another hiccup might develop.

No matter what, however, Americans have adjusted to the prospect of a continuation of higher gasoline prices by emphasizing fuel economy in vehicle buying these days. This is evident from how sales of small cars and crossover utility vehicles have taken share from larger vehicles over the last couple of years.
Launching pad: Nothing drives automotive sales like new model launches, and that bodes well for consumer interest in a year when many automakers plan a significant number of new-vehicle introductions.

Practically every brand promises the debut of at least one significant new product through the year, and many of them more than one. The launches should encourage attention by American consumers.

Incentive levels: Even if sales glide on at, say, a 10-percent higher rate this year than in 2011, automakers may be tempted to offer higher levels of sales incentives.

GM, Ford and Chrysler have recovered significant share and may be likely to defend it with more generous incentives. But Toyota, Honda and Nissan are each attempting to regain pre-recession market share. Volkswagen and Hyundai have each vowed to take a larger share of the U.S. market as part of corporate priorities. Not to be outdone, luxury brands will continue to battle for a portion of the market that actually shrank last year in comparison with mainstream sales.

Assuming the economy continues its slow, steady recovery, gas prices rise and fall at relatively predictable levels, the majority of new model launches go smoothly, and automakers are judicious in their use of incentives, 2012 could be a very good year for manufacturers and consumers alike. However, planning for the unexpected might make the difference between a good year for the industry and a great year.
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