Current Issue

Auto makers enjoy the ride too much

Comments Email
Last year was a very good year. Nearly everybody ended the year smiling. Dealers saw the best profits in quite awhile, and suppliers also did well. Manufacturers had financials that showed healthy profits after a long period of drought.

We still aren't back to the volume that the car business had a few years ago, but that may be a good thing.

Few companies were stretched to the limit last year. Most kept their profits up to a healthy level by not having to spend a lot on incentives.

But the temptation for more could kill the golden goose.

There are signs that certain companies are flooding the market with vehicles. Incentives are skyrocketing on those vehicles as manufacturers try to keep inventories in line. It looks like a losing battle. Some dealers are seeing margins erode as they must move vehicles off their lots.

If every company raises production while trying to eke out a little more market share, it won't be long before we see record sales and falling profits.

Last year, for the most part, the industry was in its sweet spot with the right mix of production and sales.

If production rises indiscriminately, all that positive financial discipline quickly will go away.

Chances are slim that companies will demonstrate the necessary self-control as they aim to increase sales at any cost. The costs will be brutal.

It seems unlikely that anyone in charge of sales would not try to increase volume. Everyone wants more sales and more market share. This time it will come with a high cost to the bottom line.

It won't be long before U.S. car and truck volume is back around 17 million units. But getting to that number could ruin the nice equilibrium that exists today between buyers and sellers.

Next week, by the end of media days at the North American International Auto Show in Detroit, we will have heard everyone's projections for 2013. If it's anything like the old days, when you add up all the numbers the total will be 120 percent of last year's industry sales volume.

The automobile industry is its own worst enemy. Auto makers can't resist squeezing the last vehicle out of a plant and pushing it onto a dealership lot.

It was nice while it lasted.



Keith Crain is chairman of Crain Communications Inc., which publishes Rubber & Plastics News.