The death of U.S. OEM sales

You are still making parts for OEM production in America? You should get a medal for bravery. And you may receive a place in history as a vanishing species. We all heard of the dismal sales of new cars in the U.S. You as a parts maker are only peripherally interested in new car sales. What interests you is new car production.

The new car production numbers coming from the U.S. are much more horrific than the sales numbers. Dealer’s lots are still full with 2008 cars. The U.S. could stop making new cars altogether and still have lots of cars to sell.

“Stop making cars” is actually quite common these days in the U.S. All Chrysler factories are shut down because of bankruptcy restructuring. Six factories of General Motors are closed, three of Ford are shuttered. In a week, when General Motors will go into bankruptcy – as it looks at the moment – all GM factories in North America and many in the rest of the world (except China) will most likely be shut down also.

When that happens, the new car production situation will get much worse than it already is. A look at the latest production statistics makes you think North America has hit bottom and cannot fall further. Sadly, it can.

Take a stiff drink, or a stomach tablet, and have a look at the latest North American production statistics. From January 1 through May 17,, 2008, all of North America (Mexico, U.S.A., and Canada) had produced 5.4 million vehicles. This year for the same period, the number is down to 2.7 million vehicles – that’s half of last year!

Imagine what happens when the GM factories go off-line. Until May 16, 2009, all GM factories in the U.S. still had produced 627,520 cars. The year before in the same period, it was 1,274,936 cars made by GM. Take the currently producing GM factories off-line, and U.S. production could fall another 23 percent from its current levels.

As far as sales go, people in the United States will most likely buy 9.5 million light vehicles (cars and trucks) this year, the forecasting firm HIS Global Insight predicts. This is the lowest sales total since the 1960s.

There will be no quick recovery, nothing like the snap-back China experienced in the first quarter of 2009.

George Magliano, IHS director of North American automotive research thinks “it's going to be a slow, long climb back to recovery.”

Hopes for a U.S. recovery have now been delayed until 2012. And nobody really expects the U.S. market to come back fully to its former glory.

Annual sales won't match 2007 levels until 2013, Magliano said. But that won't represent a full recovery, as a rising population of U.S. vehicle operators will reduce the number of sales per driver. Said Magliano, “Essentially, what we're looking at here is something that falls further and doesn't come back all the way.”

Something else has happened last week: The U.S. Dollar is at its lowest level for the year against the Euro. Last Friday, one Euro bought 1.40 Dollars. In March, the Euro bought only 1.25 Dollars. You think this doesn’t affect you, since the Dollar has, for all intents and purposes, been unchanged against the Yuan for the last year? Not at a great rate of 6.83 Yuan to the Dollar by the way.

The drop of the Dollar does affect you a lot when you do business in Euro and with Europe, as I have urged you to do since I had started writing these columns for Gasgoo. Because the Yuan is pretty much frozen against the Dollar, the Yuan gets cheaper against the Euro as the Dollar gets cheaper against the Euro. Last Friday, one Euro bought 9.56 Yuan, and it will buy more if the Dollar goes further down, as most analysts predict.

Meaning? Your products just got much more competitive in Europe, and you didn’t have to raise a finger or lower your prices.

About the author: Bertel Schmitt, Gasgoo's columnist, is CEO of Hong Kong based parts sourcing company Sinamotive. Before founding Sinamotive, with the assistance of U.S. venture capital, Mr. Schmitt was a marketing consultant to Volkswagen AG.