3 Potholes Facing Automakers in 2012

There’s a bold vibe at the Detroit auto show this week — a vaguely familiar fragrance even nicer than the new-car smell in the 2013 Dodge Dart. Call it swagger. Just 36 months after the U.S. auto industry imploded, automakers — particularly the Detroit Three — are back with more attractive products and higher projected sales for 2012.

Last year, General Motors (NYSE:GM), Ford (NYSE:F) and Chrysler actually gained U.S. market share from Toyota (NYSE:TM) for the first time in more than two decades. After driving back to an annual volume of 12.8 million vehicles in 2011, U.S. auto sales are forecast to grow between 4% and 9% in 2012, a Citigroup analyst said this week — that translates into a total of nearly 14 million new vehicles.

That’s a far cry from the anemic 10.6 million sold in 2009, at the depth of the auto industry crisis, but well down from the industry’s historic highs of more than 17 million from 2004-06. And because of challenges in Europe and major emerging markets like China, automakers will need a big rebound in U.S. sales to meet expectations this year.

Ten months after the Japan earthquake, tsunami and nuclear disaster took much of Toyota and Honda (NYSE:HMC) production offline, the automakers hope their hottest new models (the Prius and Accord, respectively) will help recapture lost market share.

Despite the fact that the road ahead looks smooth, here are three potholes automakers need to look out for this year:

  1. Europe. The eurozone crisis has hammered vehicle sales in the region, with PricewaterhouseCoopers estimating 2011 sales at only 13.5 million. Fiat CEO Sergio Marchionne said unless the sovereign debt crisis can be resolved soon, vehicle sales in Europe are unlikely to rebound until at least 2014.
  2. China. In the world’s largest and most promising market, vehicle sales grew by only 2.5% last year, the China Association of Automobile Manufacturers reported last week. Although U.S. automakers — particularly GM and Ford — are gaining ground in China, a pullback on tax breaks and subsidies from Beijing may keep growth relatively flat this year.
  3. U.S. Retail Sales Down, Unemployment Claims Up. December retail sales were flatter than expected and unemployment claims increased to their highest levels in six weeks, according to data released Thursday. Although auto sales still rose by 1.5% last month, the weaker-than-expected numbers suggest the economy is not on as solid a footing as had been hoped.

Bottom Line: The good news for auto industry investors is that the bloodbath of 2009 is behind us. The bad news is we’re not likely to see a reprise of the Golden Age of 2004-06 anytime soon. Still, Ford and GM shares are trading 33% and 29% above their respective October lows. TM and HMC, which were substantially impacted by flooding in Thailand, have recovered 13% and 18% since their 52-week lows in November.

From a company perspective, CEO Alan Mulally’s Ford is not just tough — it’s smart. Mulally unveiled his 2013 cloud-connected Ford Fusion last week not just in Detroit, but in Las Vegas — at the Consumer Electronics Show, highlighting his view that Ford’s global car platform is about the technology, too.

Fiat’s Marchionne is moving Chrysler into the fast lane with new products like the Dodge Dart, Jeep Grand Cherokee and Chrysler 200 sedan. While he doesn’t expect Chrysler’s U.S. 2011 sales growth rate to continue at the same pace this year, he’s confident that sales will grow. And that might position the unit well for an IPO.

General Motors has a good shot at retaking the global auto sales crown from Toyota when numbers are released later this month. However, the company continues to fight the current political flap over Chevy Volt’s dismal sales (and potential for battery fires). GM says inventory shortages suppressed sales, while critics say there is little demand for the only plug-in hybrid vehicle sold in the U.S. GM announced a fix for the battery fire problem in Detroit, but that won’t lure buyers into showrooms.

While Toyota and Honda are expected to get up off the ropes this year, they will face stronger competition for popular models like the Camry and Accord.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.

Article printed from InvestorPlace Media, https://investorplace.com/2012/01/automakers-2012-sales-ford-gm-toyota-honda/.

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