A much battered automobile industry enjoyed a significant rebound from 2010 through 2012—a sharp and welcome contrast to its state during 2008 and 2009. In the U.S. and around the world, the recession that started near the end of 2007 had a profound impact on the automobile industry.
America’s car and light truck market dropped dramatically in 2008, to approximately 13.2 million units sold for the year, down by about 2.9 million from the number of units sold in 2007. In 2009, the market was much worse, with sales for the year totaling 10.4 million units. About 690,000 of those sales were made with the stimulus of a “cash for clunkers” program paid for with federal dollars. This was easily the worst year in decades for the car business, with two giant manufacturers filing for bankruptcy, GM and Chrysler, while a large number of dealerships, suppliers, parts manufacturers and other auto-related businesses also failed. By 2011, Chrysler was largely owned by Italian car maker Fiat, thanks to agreements and financing that had enabled Chrysler to exit bankruptcy. GM was largely owned by the U.S. federal government.
Estimates of the global automobile market vary substantially from one source to another. The Worldwatch Institute estimated total car and light truck production worldwide at 74.4 million in 2010, 76.8 million in 2011 and as much as 80 million in 2012. Analysts at Wards estimated that 6.56 million vehicles were sold in July 2012 alone.
Analysts at Scotiabank issue a conservative estimate of total car and light truck sales each year. For 2012, Scotiabank forecast 62.4 million total units sold, compared to 58.9 million for the previous year. It estimated Asia to be the largest market by far, followed by North America.
According to Plunkett Research estimates, U.S. car and light truck sales will total from 14.4 to 14.9 million units for 2012 provided the economy does not slow significantly during the final quarter of the year. This would represent good growth from 13 million units during 2011 and 11.55 million units during 2010.
The biggest upward trend in auto sales has been in China. While estimates of its annual unit sales vary widely, China has clearly become the world’s largest car market, and it appeared to be on track to sell 20 million units in 2012. The China Association of Automobile Manufacturers states that its members manufactured 18 million units during 2010, some of which were for export. Meanwhile, China’s government has a great deal of control over the market, as it may increase sales by encouraging new auto loans, or decrease sales by adding new registration fees or restricting traffic in major cities in order to reduce congestion and pollution.
One of the biggest winners by far in today’s highly competitive automobile market has been Korea, where Hyundai, along with its brand Kia, have enjoyed soaring global sales. Consumers are attracted to their reasonable prices, excellent warranties and world class manufacturing quality. Korean car makers are competing aggressively against the world’s largest firms. Hyundai’s sales soared to 6.60 million units worldwide during 2011, up from 5.74 million units in 2010. This puts it above auto giants such as Ford and Honda.
Approximate Global Unit Sales by Top Auto Manufacturers 2011, in millions
General Motors (GM) 9.03
For the first half of 2012, Toyota regained the global vehicle sales lead over GM. Volkswagen appeared close to surging ahead of GM as well, which would push GM to third place. Toyota said it expected to sell a record 9.58 million vehicles in 2012 now that its 2011 tsunami-induced problems are behind it and it has rebounded from large recalls. Volkswagen has a goal of boosting its total global sales to 10 million units by 2018.
There are approximately 240 million vehicles in operation in the United States. Around the world, there were about 1 billion cars and light trucks on the road in 2012.
All major car makers are aggressively pushing their smaller, high efficiency vehicles due to both high gasoline prices and government mandates that auto manufacturers meet high average miles per gallon rules. At the same time, engineers are pushing technological changes in their larger cars and light trucks in order to enhance their fuel efficiency. GM is betting heavily on its Chevrolet Cruze, a small sedan capable of 36 mpg on the highway and stuffed with convenience features that consumers appreciate. Ford’s revamped Fusion earned rave reviews, and it comes in either a hybrid model or a standard engine version that gets 31 mpg on the highway. Chrysler will be relying heavily on its relationship with Fiat for new, fuel efficient models. Honda, Volkswagen, Toyota, Hyundai, Nissan and Peugeot all have invested in new, advanced small cars. Luxury brands like Mercedes and Audi each have relatively small cars on the market and will steadily introduce a wide range of fuel efficient designs. BMW will introduce its iSeries high efficiency cars in 2014, including a three-cylinder engine that will power a new hybrid.
One result of high gasoline costs and frugal consumers has been strong demand for Toyota’s Prius gasoline-electric hybrid car. The company has made investments that enable it to manufacture hybrid versions of many of its popular models, including the Camry and several versions of the Lexus. Hybrids are now available from a wide variety of makers, and technology has steadily improved. Nonetheless, hybrids remain a very small fraction of the overall car and truck market due to their relatively high initial costs.
One of the most disappointing trends has been the introduction of plug-in hybrids (PHEVs) and electric vehicles such as GM’s Volt, which debuted in very low production volume as a 2011 model. This car includes a gasoline-powered engine capable of charging its batteries for those occasions when it is not convenient to plug in and, that provides a boost to acceleration when needed. Nissan offers competition in the electric vehicle sector with the 2011 launch of its all-electric model called Leaf, initially in very low volume. However, the high prices and limited range of batteries will cause many consumers to stay away from electric cars. This market is likely to begin rapid growth when advanced batteries become available at lower cost, which may take until 2020 or so. Many of the world’s top research organizations are working steadily on this challenge.
Both consumers and emissions regulators are taking a renewed interest in advanced automobile technologies. Clean diesel engines, like those offered in new cars from BMW, Volkswagen and Mercedes-Benz, offer exceptional performance and fuel economy while providing quiet, vibration-free running similar to that found in gasoline-powered cars. Clean diesel offers a particularly attractive alternative to hybrid technology for those who seek fuel efficiency, and it is already widely used in passenger vehicles in Europe. Meanwhile, the use of ethanol as a gasoline additive in America has grown rapidly, whether or not it makes any environmental or economic sense, thanks to requirements enacted by Congress.
Consumers are keenly interested in quality and serviceability in the cars that they acquire. A stumble in this regard can have devastating consequences for a car maker, as seen in Toyota’s 2009-10 quality problems that led to slow sales, massive recalls and a humble apology from the firm’s leader.
The rising affluence of consumers in China is creating both huge opportunities and major problems. China has become the world’s largest user of energy overall and one of the world’s largest importers of petroleum products, largely to fuel its burgeoning fleet of cars and trucks. Streets and highways are clogged with cars, to the extent that traffic and smog are nightmarish. Automakers from abroad have raced to establish plants and partnerships in China, with the aim of producing cars both for domestic use and for export. Today, strong markets have emerged there for everything from inexpensive sedans and vans to Cadillacs and German luxury cars.
India has also seen significant growth in its automotive sector. During 2009, local industrial giant Tata launched a no-frills car called Nano at a price equal to less than $2,500 U.S dollars. While initial customer deposits for future delivery of this innovative car made the Nano appear to be a great success, sales have not been up to expectations. Nonetheless, a major effect of the Nano has been a rush by many of the world’s largest car firms to design very inexpensive family sedans for India and similar emerging markets.
Not to be overlooked are the vast changes taking place in automobile manufacturing plants. Flexible factories have reduced man-hours and cut costs per car, while offering a much wider range of choices for customization by consumers. Today, more than ever, car manufacturers and their suppliers are cooperating in the design and manufacture of new cars in ways that are revolutionizing the entire process. Bankruptcies at GM and Chrysler in 2009 enabled these firms to shed debt and dramatically reduce operating costs.
Inexpensive cars manufactured in China are now on the market in many emerging nations. The question is not whether China will export cars and trucks, but whether consumers in advanced markets such as America will be convinced that they offer safety and reliability. Meanwhile, U.S. automakers have made intense demands on their component suppliers for lower prices—these suppliers are, in turn, looking to low-cost production in China and other emerging nations.
European manufacturers are facing challenges of their own. High costs, tough labor laws and daunting government regulations are constant challenges to manufacturers there. Nonetheless, firms like Volkswagen and Daimler/Mercedes-Benz have found great success in the global market, often locating plants in nations where their products sell well. Volkswagen has its eye on becoming the world’s largest car firm. Meanwhile, as of 2012, difficult economic conditions in Europe were leading to slow domestic sales, and manufacturers were struggling to reduce both costs and manufacturing capacity.
The thought of the next billion automobile owners is either the most intriguing or the most terrifying vision for the near future, depending on how you look at it. Despite the recent woes of the automobile industry, future global demand for cars will far outstrip former peaks, creating immense business opportunities. While incomes are rising in the developing world, the price of entry-level automobiles is dropping. Car makers are rushing to introduce their own low-cost options for buyers in China, India and elsewhere.
In its report World Economic Outlook April 2008, the International Monetary Fund shows how, under one method of analysis, the number of cars in emerging and developing economies could increase by 1.9 billion from 2005 to 2050, bringing the world’s total to nearly 3 billion automobiles. Will this actually occur? The personal income needed to acquire the cars will be there, but many other questions loom: Will that many consumers find automobile ownership to be desirable? Will public transportation, car sharing systems, commuter trains and other alternatives to individual car ownership reduce demand for personal automobiles? Will fuel, whether gasoline, hydrogen or electricity, be affordable and readily available? Will roads, parking and other traffic infrastructure be adequate to support car ownership on this scale? The same massive inconveniences and costs of individual car ownership that face residents of extremely dense cities such as Tokyo and Manhattan today may dampen desire. Car sharing plans may boom. On the other hand, new traffic and safety technologies may smooth traffic flow, while highly efficient electric cars topped off by safer nuclear generation plants and concentrated solar plants may turn fuel consumption and pollution into modest problems. In any event, it is reasonable to assume that the world’s economies will advance to the point that 3 billion people will desire and be able to pay for access to advanced transportation, whether or not that takes the form of individual automobile ownership on such a massive scale.