Auto Industry Is Back On A Growth Track
by Jeff Gilbert
WWJ AutoBeat Reporter
BIRMINGHAM (WWJ) - A new study says the auto industry is starting to return to normal, with new opportunities created by pent up demand, the Japanese earthquake and even the increasing weight of car buyers.
"As the economy recovers, we see vehicle sales increasing," says Dan Cheng, a partner in the consulting firm A.T. Kearney, which has entitled its annual forecasting report, "Shifting Into High Gear."
A.T. Kearney projects the auto industry will sell 13.2 million vehicles in the United States this year, with the number rising to a more normal level 16.7 million sales level in 2013.
The study says that the recession caused 32 million people to cancel or delay plans to purchase vehicles, creating a lot of pent-up demand. Cheng says up to a third of those buyers will return to the new car market in the next few years.
Another area of opportunity, Cheng says, is the sub prime market, which grew by 17 million people during the recession. He says they aren't all credit risks, that many people saw their credit ratings drop because of circumstances beyond their control.
"Basically they are people who had near prime and prime credit, people who are good credit risks, and are now finding themselves in the sub prime category."
Cheng says credit is opening up to these buyers, creating new opportunity for car companies.
Short term, there's the issue of the Japan earthquake, which has created opportunities for domestic car companies.
"There are certain customers who are brand loyal, and they will wait for the OEM's to return availability of the models that they want to buy," says Cheng. "But, approximately 197 thousand, as of last week, customers that potentially could be up for grabs by an OEM that has product when their current brand OEM does not."
The A.T. Kearney study showed high gas prices pushing more people to smaller cars. But, Cheng doesn't see the American car market mirroring Europe, where small cars are the majority of vehicles on the roads. He says Americans interest in smaller vehicles tends to rise and fall with gas prices.
"It's not so much the absolute level of gasoline prices, it's the rate of change," said Cheng. "So, when gasoline prices increase very rapidly, there's a great demand for small cars. When gasoline prices decrease rapidly, it tends to shift toward smaller vehicles."
One other trend that pushes drivers into larger vehicles is the larger size of Americans. Cheng says A.T. Kearney found a connection between the size of drivers, and the size of the vehicles they buy. He says as the Body Mass Index (BMI) of Americans continues to rise, those drivers will be reluctant to downsize into smaller vehicles.
"We see that accelerating going forward, as the projected number of Americans with a BMI of over 30 (the medical definition of obesity) will actually increase by 2018."
