Detroit, MI – US Carmakers Revving Up after Years in the Slow Lane

Detroit, MI – Motor City is getting something it hasn’t seen in a long time: new jobs.

The Big Three automakers – General Motors, Ford and Chrysler – had their production and management concentrated around Detroit for most of the 20th century.

But all of them had seen their market shares, profits and labor forces dwindle since the 1970s, interrupted only by occasional rebounds with the US economic cycle.

Detroit has suffered the worst of the decay, its centre full of vacant buildings and entire neighbourhoods hollowing out, with the resulting crime and social breakdown.

A few months ago, something changed: Chrysler announced a third shift at its assembly plant on Jefferson Avenue in Detroit, hiring 1,100 new people to help build the redesigned Jeep Grand Cherokee sport utility vehicle.

Two years earlier, in mid-2009, Chrysler and GM went into bankruptcy, undergoing landmark reorganizations only with massive government intervention.

On the eve of the annual Detroit auto show – the industry’s most important North American showcase, held just 10 kilometers from the Jefferson Avenue assembly plant – carmakers are singing a happier tune.

Previews start Monday for the January 14-22 event.

Sales in the United States rose in 2011 by 10.3 percent to an estimated 12.8 million vehicles, with another big jump to about 14 million units expected this year.

Beyond the United States, carmakers in Europe and elsewhere are also ramping up production. Volkswagen announced Friday that it was opening a new factory in China.

Wall Street ratings firm Fitch estimates car sales in Europe will be off in 2012 because of the eurozone crisis, and even fast-rising markets such as China, India and Brazil could see a slowdown in sales growth.

The lucrative US market could be decisive for the global car industry in 2012.

Old cars that Americans have clung to since the 2008-09 recession are showing their age and will be increasingly replaced. The delayed sales and pent-up demand from the last few years are bubbling to the surface.

Despite the US economy teetering on the edge of a double-dip recession in the first half of 2011, unemployment eased in the second half from more than 9 per cent to 8.5 per cent in December, still high compared to recent decades but improving enough to move many Americans from fear to at least cautious optimism.

German carmakers VW, Audi, Porsche, Mercedes, BMW and its subsidiary Mini were among the big winners in market share in 2011.

Across the industry, though, sales were driven in part by rebates offered by the manufacturers to lure buyers into showrooms, even for luxury brands. Car industry news website Edmunds.com reported that BMW buyers in December received an average rebate of 3,700 dollars, while Mercedes customers got back 3,200 dollars per vehicle.

Such rebates help move the product but are deducted directly from the company bottom line.

A study by KPMG accounting firm warned that competition from carmakers in emerging economies would increase, raising the risk that the industry could again find itself with overcapacity.

Indian company Tata is perhaps only the best known of a crop of fast-growing carmakers that include Chinese firms BAIC, SAIC, Chery Motors and Geely.

But even if the US economy hits another speed bump, Detroit’s carmakers are far better positioned than in 2009, the Fitch agency says.

Ford had started its reforms earlier and was able to avoid bankruptcy, while the court-supervised reorganization allowed GM and Chrysler to shed massive legacy costs while streamlining them into smaller, leaner companies.