Rising auto sales could rescue Michigan, Big Three
Auto sales are up, even for the Big Three. The worst may be over for US automakers – and for Michigan.
And what a hole it's been. For almost three years, Michigan has had the highest unemployment rate in the nation. Two of the Detroit-based Big Three automakers in 2009 needed billions in federal bailout money to stay in business and drastically downscaled their operations. Plants, dealerships, and parts suppliers closed. The city of Detroit, feeling the loss of tax revenues from the auto industry, grappled with insolvency.
Many caution that a two-month bump in overall US auto sales is not yet cause to break out the pompoms. But the fact that more cars and trucks are leaving the showrooms – and that US automakers' vehicles are part of that caravan – may be the best news this region has heard in a long time.
"There's no question that ... everywhere in the industry there is a sense that the worst has passed," says Paul Eisenstein, publisher of TheDetroitBureau.com, a website that tracks the automotive industry. "But this is tempered by a level of pragmatism. One reason is that no one expects this market to come roaring back. The best hope is that it will creep back with all the weight of a mouse."
It is likely, too, that Toyota's loss has been its competitors' gain. After Toyota on Jan. 26 halted sales of certain models to fix "sticky gas pedal" issues and had to recall 8 million vehicles, the Big Three were among those who saw better February sales than they might have otherwise.
Ford, for instance, reported that sales shot up 43 percent in February from the same month in 2009 – more than any other automaker, domestic or foreign. General Motors' sales rose 12 percent. Even Chrysler, the domestic carmaker on the shakiest footing, got a tiny sales uptick of 0.5 percent, its first in 25 months.
Economic ripples from the sales turnaround are already evident in the region, according to the Southeast Michigan Purchasing Managers Index, which tracks manufacturing purchasing trends, including employment. The study, conducted by Wayne State University (WSU) in Detroit, shows that purchasing in February from all manufacturing sectors, including automotive, increased 27 percent from the previous month.
The added activity stems in large part from the automotive sector, which "is just a tremendous part of the Detroit economy," says Timothy Butler, associate professor of supply-chain management at WSU. "With the improvement in new orders, there's also some pickup in hiring … and that's key in this region."
One example is American Axle & Manufacturing (AAM) in Detroit, one of the area's largest suppliers of drivetrain and chassis systems. General Motors and Chrysler used to account for 85 percent of AAM's business, which came to a screeching halt when both automakers declared bankruptcy last spring and temporarily stopped production.
As a result, AAM's revenue in 2009 fell 30 percent, resulting in layoffs, some facility closings, and a company restructuring. It was "a novel year," Chris Son says dryly. He's director of investor relations and corporate communications at AAM.
Auto manufacturers depleted their parts inventories ahead of the plant shutdowns. So, when production lines started back up, suppliers were in demand to replenish the shelves. While the upturn in sales is welcome, Mr. Son says AAM is now restructured to remain "relatively conservative" in its sales expectations for 2010. It's not ready yet to start adding employees.
Michigan's economy still rises and falls with the Big Three because the auto industry is such a dominant employer. It accounted for 20 percent of the state's workforce in 2008 (the latest year data are available), says Sean McAlinden, chief economist for the Center of Automotive Research in Ann Arbor, Mich.
Here's the math: Every job at GM, Ford, or Chrysler supports three jobs elsewhere in the state, whether at a parts supplier or at the diner across the street from the plant.
Still, that dependency is shrinking. The Big Three employ about 98,000 people in Michigan, a far cry from the 460,000 who worked for them in 1979, their top production year.
"We're not going to get even a fraction of that back. It's too global of an industry," Mr. McAlinden says.
Whether Big Three auto sales will continue their upward trend is debatable. For one, the US government's "Cash for Clunkers" stimulus program for the auto industry has ended. For another, Toyota is moving aggressively to recoup lost market share, offering attractive financing to new-car buyers. Sales figures for March, expected April 2, will tell more.
In this region, the shining hope is Ford. The only domestic automaker not to take bailout money, Ford closed 2009 with a $2.7 billion profit, its first in four years. It is receiving accolades for the quality of vehicles like the Taurus SHO and the Fusion Hybrid, which won the 2010 North American Car of the Year in January at the Detroit auto show.
Ford is wary of making too much of its recent success, says Mr. Eisenstein, even though it is "the strongest of the Detroit makers with the biggest level of momentum." It knows that "just like a runner at an Olympics, it only takes one quick stumble to knock you out of the race."
January and February sales of almost 1.5 million vehicles, while better, nonetheless pale in comparison with the 2.3 million vehicles sold during those months in prerecession 2007. Few expect sales to hit that level again anytime soon.
"Automakers are currently pushing to be able to not just survive, but thrive at numbers that even three, four, five years ago would have seemed like unmitigated disaster," says Eisenstein. "Now they're looking at those sales numbers and saying, 'We could have a pretty good business at this point.' "