The Wall Street Journal - Japanese auto makers' sales roared back in the U.S. last month and, unlike in years past, Detroit stuck with them by boosting sales in a market that for now appears to be defying the downdrafts threatening the broader economy.
The three leading Japanese auto makers in the U.S. on Tuesday said sales surged in June compared to an unusually weak year-ago period when supplies were disrupted by an earthquake and tsunami. Toyota Motor Corp. reported a 60% sales increase for the month while Honda Motor Co. rose 49% and Nissan Motor Co. posted a 28% increase.
Traditionally, such big Japanese gains often came at the expense of Detroit's auto makers. But last month General Motors Co., Chrysler Group LLC and Ford Motor Co., continued to improve their sales compared to a year ago. Chrysler led the way with a 20% increase, while GM sales rose 16% and Ford sold 7% more vehicles. U.S. total new-vehicle sales finished at a nearly 14.1 million annualized pace in June, according to researcher Autodata Corp.
The latest results indicate that the U.S. auto industry is operating in an unusual sweet spot, with production tracking more closely to demand than in the past, discounts in check and all the major players fielding competitive product lineups.
Add low interest rates and pent-up demand from consumers driving cars that on average are more than 10 years old and industry executives say they remain optimistic despite anxiety about the broader U.S. economy.
This profitable equilibrium could be upset by a sharper reversal in job and income growth, shocks from the European financial crisis, or by auto makers sliding back into old habits of overproducing vehicles, then discounting to move them off dealer lots.
One reason industry executives are upbeat is that consumers are still willing to pay more for new vehicles. Average vehicle selling prices rose 2.9% in June from a year ago to $30,508, according to industry-research site TrueCar.com. The average June incentive was $2,432 up a slight 1.5% from the same period last year.
"There is demand out there" despite the uncertainty about the overall U.S. economy, said Adam Silverleib, vice president at Silko Honda in Raynham, Mass. "Supply is back to normal. My inventory is pretty good right now although I can't get enough Civics."
Auto makers will face a challenge to maintain their robust pricing as they push to add capacity to build more vehicles during the next several months.
"We certainly need a stronger economy and more job creation to continue driving auto sales," GM sales chief Kurt McNeil said on Tuesday.
Chrysler is in the process of adding a third shift to plants in Illinois and Michigan to churn out more vehicles such as the Dodge Dart and Jeep Grand Cherokee. Chief Executive Sergio Marchionne also is considering using a third Fiat SpA plant in Italy to produce vehicles for export to the U.S. Fiat is the majority owner of Chrysler.
Ford is adding 400,000 units of capacity this year while Honda is adding 140,000 units of capacity in North America over the next year. Nissan, is building a new plant in Mexico and is expanding production capacity in Tennessee and Mississippi to meet expected demand to crest a 10% market share in the U.S.
"Quite frankly, if you have 330 million people in the U.S. and a huge generation of drivers coming of age, how long can you hold the industry down? I'd rather be in a situation where we have the capacity to meet the demand," said Al Castignetti, U.S. sales chief for the Nissan brand. "Europe is the black cloud hanging over everybody's head right now."
Troubles in the European economy combined with a slowdown in China's growth is already showing signs of denting the U.S. economy. For the first time since July 2009, the U.S. factory sector shrank during the month of June, the Institute for Supply Management reported Monday. Exports fell and new orders, which gauge future factory activity dropped at their fastest pace since the post-9/11 plunge in October 2001.
For June, Chrysler, once again led U.S.-based auto makers in terms of percentage gain. It reported a 20% increase, to 144,811 vehicles compared with 120,394 for the same period a year earlier.
Ford sales rose to 207,204 cars and light trucks while GM sold 248,750 vehicles. Toyota reported selling 177,795 vehicles, up from 110,937 a year earlier. Honda sold 124,808 compared with 83,892 for the same month a year earlier. Nissan sold 92,237 vehicles, up from 71,940 vehicles a year ago.
