Wednesday, June 19, 2013 | Edited by Daniel Moores
||Vehicle Output Soars to 16 Million, With High-Profit Twist
Vehicle production in North America is back near record levels, with output forecast to surpass 16 million units this year for the first time in more than a decade.
But even though the numbers look similar to the days when Detroit used sky-high incentives to grapple with bloated inventories, the industry is in a much different place this time around.
Dozens of assembly and parts plants closed during the recession. Automakers now are running many plants around the clock to keep up with rising demand yet proceeding cautiously to ensure they don't get ahead of the market.
The result is big profits all around and little danger, analysts say, of resuming old habits of overproduction and fire-sale discounts. That's because the increased production isn't expected to result in more units going into the North American market.
A large portion of the increased output stems from automakers exporting more vehicles from North America. Also, Japanese manufacturers are shifting production to U.S. and Mexican plants to blunt the effect of a stronger yen.
Meanwhile, even as sales keep growing, each of the Detroit 3 says it sees no need to build or reopen plants in North America.
"There's always ways in manufacturing to figure out how to make more," says Jim Tetreault, vice president of North American manufacturing at Ford Motor Co., which is increasing its annual capacity in the region by 600,000 units over an 18-month period that began in mid-2012. Ford also is cutting its usual two-week summer shutdown in half at many plants.
"The trend at Ford is we're going to run more and more hours," Tetreault says. "Our goal moving forward is to try to continue to up that operating capacity."
IHS Automotive projects that automakers will build 16.1 million cars and trucks in North America this year, up 4 percent from 2012 and more than in any year since 2002, when production totaled 16.4 million.
That means all the assembly capacity lost during the recession has been replaced by additional shifts at the remaining Detroit 3 plants and new plants opened by Asian and European automakers.
Honda Motor Co. now builds 90 percent of the vehicles it sells in North America locally, and by 2015 it plans to export more vehicles from North America than it imports. The company took about 20 years to export its first million vehicles from here but expects to send about 200,000 units overseas annually within the next few years.
"Our strategy is to build the high-volume stuff in the markets where we sell them and fill in with exports," said Ed Miller, a Honda spokesman.
Nissan Motor Co. has added more than 5,000 U.S. manufacturing jobs since mid-2011 as it localizes and raises production of its core models. It started building the Leaf in Tennessee last year and plans to shift assembly of the Sentra, Murano and other models to North America in the near future.
By 2015, Nissan intends to build 85 percent of its U.S. sales volume in North America, up from 69 percent in 2012.
Growth in Mexico
A big factor in the North American resurgence is Mexico, where annual production has increased by 1.2 million units since 2002 and several plants are under construction.
The IHS forecast calls for output in Mexico to exceed 3 million units for the first time ever in 2014, as plants being built by Honda, Nissan and Mazda Motor Corp. go online. Just three years later, after Volkswagen Group opens the plant its Audi brand is building, IHS says Mexican output will top 4 million units a year.
Audi had a seven-month waiting list for the Q5 crossover, which it plans to make in San Jose Chiapa, when it broke ground there in May. The plant will use a modular assembly system that allows other products to be substituted easily as demand dictates.
"We are totally flexible," Audi AG CEO Rupert Stadler told reporters. "But we are absolutely sure that with the Q5 we will fill the capacity up to the top."
Higher auto exports from North America -- particularly from Mexico, which offers manufacturers the ability to ship vehicles tariff-free to many countries, including the European Union -- also are contributing to the production growth.
Exports from Mexico to outside North America have increased from virtually zero before 2000 to about 880,000 in 2012, the Federal Reserve Bank of Chicago said in a May research report.
Meanwhile, exports of U.S.-made vehicles to other continents more than doubled from 2009 to 2011, when more than 800,000 units were sent overseas, according to the Department of Commerce.
Overall, IHS says North American production should reach 17 million in 2015, a level last breached in 2000 and almost double the 8.6 million units built in 2009. Adam Jonas, an analyst with Morgan Stanley, says more than 3 million units of annual capacity are coming online between 2011 and 2015, the largest increase in any four-year period in North American history.
"When it comes to capacity, this industry has a history of: 'If you build it, let's hope they come. And if they don't come, we'll make them come,'" Jonas wrote last month in a report he called "A Letter to Detroit."
"The capacity added this time is cheaper and more flexible," he continued, citing Mexico's low labor rates and the UAW's two-tier wage scale at U.S. plants, "but doesn't bode well for pricing. Use your newfound flexibility to prioritize product excellence and wallet share over market share."
Reluctance to add plants
Michelle Krebs, an analyst with Edmunds.com, says automakers have kept incentives in check so far but that competition could start chipping away at transaction prices when sales slow and inventories rise.
"There needs to be some caution about overproducing," Krebs says. "That's why we haven't seen suppliers jump at adding more bricks and mortar. They're figuring out ways to eke out more production in the plants that we have -- doing more shifts and eliminating bottlenecks."
At some plants, the Detroit 3 are pushing output even beyond the three-shift model by staggering employees' days off and scheduling crews over seven days.
Still, Krebs says the worst that could happen today is far better than the situation the Detroit 3 got themselves into previously. With each of the domestic companies structured to be profitable as long as U.S. sales are at least 10.5 million or so, "it's just a totally different animal now," Krebs says.
No automakers have announced plans to add plants beyond the ones already on the way in Mexico, and each of the Detroit 3 has told Automotive News specifically that it does not foresee needing any more plants.
"We will never build bricks and mortar again, I don't think," Chrysler CEO Sergio Marchionne said at this year's Detroit auto show. "I think we need to use what we've got and take it to the wall, run three shifts, run overtime."
Marchionne said he hopes to exceed Chrysler's goal of building 2.6 million vehicles this year, nearly all of them in North America.
"We're going to try and push beyond 2.6 in 2013," he said. "We've got a lot of work to do here, but the machine needs to be pushed. No vacations. No breaks."
General Motors CFO Dan Ammann last month said he does not see the need to reopen any closed plants.
"I don't see that in the near-to-medium-term future, primarily because we still have the capacity to add shifts," Ammann told Automotive News.
"We have reasonably flexible production capacity. We think we'll be able to deal with any reasonable demands in the near to medium term."
Ammann also said he's not concerned about any negative effects of the increasing North American production capacity across the industry.
Ford this month said it will increase North American production in the third quarter by 10 percent. But Tetreault says the company does not anticipate needing additional plants as far as it can see into the future.
IHS analyst George Magliano says, based on his firm's projections, that all automakers can satisfy customer demand through at least the end of the decade without any new plants in North America "unless things really exceed our expectations."
(Source: Automotive News, 06/17/13)
||Edmunds.com Report Sheds New Light on Car Shopping Trends and Behaviors
Car buyers spent an average of $30,803 on new-car purchases last year -- an all-time high, according to Edmunds.com.
The company also found that an average of $2,200 -- or about 7 percent above base prices -- was spent on optional equipment for those cars, according to the company's 2013 Car Shopping Trends Report.
"The trends we found offer direct clues to ways that the automotive industry can move toward a more engaging car-shopping experience," says Edmunds.com President Seth Berkowitz. "In evaluating our wealth of data, we uncovered a story about car shoppers that is often surprising and counterintuitive, and at other times reinforces critical theories held throughout the industry."
Key findings in the 2013 Car Shopping Trends Report include:
(Source: Edmunds.com, 06/13/13)
- Two out of every three car shoppers consider themselves highly engaged in the car-shopping process. When they shop on Edmunds.com, they're most interested in reviews, pricing information and photos.
- Shoppers are very good at anticipating how much they'll pay for a new car. New-car shoppers told Edmunds.com in 2011 that they planned to spend an average of $30,500 for their next vehicle, which closely mirrors the $30,803 they actually spent in 2012.
- Shoppers are turning to leases now more than ever. And the difference between the average monthly lease payment ($433) and the average monthly finance payment ($468) is greater than at any time since Edmunds.com started keeping records.
- Luxury car owners and shoppers are considering and buying more non-luxury cars. This trend speaks to the improved quality of non-luxury vehicles.
- About 44 percent of all trade-in vehicles last year were applied to the purchase of a new car of the same brand. This is consistent with the 2011 survey that found 49 percent of shoppers said they "plan to stick with a brand that has worked in the past."
- Traffic to Edmunds.com's mobile site spikes on the weekends -- especially on Saturdays -- when the bulk of car buying takes place.
Edmunds.com's 2013 Car Shopping Trends Report is available for free download through this link.
||Porsche, Cadillac Lead Automotive Brand Loyalty Improvements in First Quarter
Ford Maintains Lead in Overall Brand Loyalty
Recent analysis of repeat buying behavior from Polk during the first quarter of 2013 finds average new vehicle brand loyalty rates increasing to 51.5 percent, up more than 2 percentage points over the same time period last year.
Thirteen brands experienced a larger jump in owner loyalty than the industry average compared to the first quarter 2012, with Porsche, Cadillac and Mazda representing the three largest quarter-to-quarter improvements, according to Polk.
Among brands with at least 1,000 former new vehicle buyers returning to the U.S. market in the first quarter, Porsche owner loyalty improved 9.5 percentage points. Cadillac continued its owner loyalty improvement over 2012 with an uptick of 8.3 percentage points over the same period last year, while Mazda was third most improved for the quarter, as the brand improved its owner loyalty 7.8 percentage points during the first quarter of 2013.
Also finishing above the industry average were BMW (+7.0 percentage points), Lexus (+6.4), GMC (+5.7), Buick (+5.3), Land Rover (+4.3), Audi (+3.6), Toyota (+3.4), Ford (+3.3), Chevrolet (+3.1) and Mercedes-Benz (+3.0).
"In each case, strong-selling models fuel the loyalty to these brands. We saw a majority of the contribution for brand loyalty coming from Cayenne owners for Porsche, CTS owners for Cadillac and Mazda3 owners for Mazda," noted Lonnie Miller, vice president of Polk's Loyalty Management practice. "There's something to be said for paying positive attention to the majority of your customer base while treating buyers professionally and continuing to meet or exceed their vehicle needs."
Ford Maintains Brand Loyalty Leadership
Overall, Ford continues to lead the industry, with a brand loyalty rate of 65.1 percent among new vehicle owners who returned to market during the first quarter 2013, proving that its impressive lineup is making a significant impact among automotive shoppers who are returning to market.
Toyota brand loyalty was more than 6 percentage points behind Ford for the timeframe, with a 58.5 percent loyalty rate. Honda (57 percent), Chevrolet (56.2 percent), and Mercedes and Nissan (each at 55.9 percent) round out the top six brands for the quarter's loyalty analysis.
"Automakers take customer loyalty seriously. Polk continues to work with them on both measurement and improvement plans in order to help dealer and corporate personnel understand what share of their total sales should come from repeat buyers versus newly acquired customers," said Miller.
The first quarter 2013 analysis evaluated brands against their performance during the first quarter in 2012. Loyalty rates among top ten brands with at least 1,000 new vehicle-owning customers returning to the showroom during the quarter ranged from 52.2 percent to 65.1 percent.
(Source: R.L. Polk, 06/05/13)
Daily Sales Tip: Express Your True Intent
Tell customers upfront: "I don't know if there's a fit between what you need and what I have right now, but I'm hoping we can explore that in more detail during this meeting."
Or: "I only have your best interests at heart, and I promise to be honest with you throughout our conversation. In the end, I hope that we can mutually decide if there is a reason to move forward. If not, that's fine, too, and I hope you'll feel comfortable telling me so."
This advice runs counter to 90 percent of the approaches I see. But then again, maybe that's why only 10 percent of salespeople are top performers.
Try it yourself a few times, and you'll be amazed at the response you get.
Source: Colleen Francis, president and founder of Engage Selling Solutions