Industry sales of light vehicles increased 13.4% to 14.5 million units compared to 12.8 million in 2011. By any measure, this represented another year of strong recovery and was certainly a key factor in providing additional employment at both the OEM and supplier levels. Industry observers are expecting further gains in 2013. Rising sales also translated into improved earnings and stronger balance sheets. Due to the nature of vehicle manufacturing, incremental sales are very profitable and it appears that most manufacturers exceeded their internal expectations in 2012. Unfortunately, this can really work against you if sales soften.
Both Ford and GM reported higher sales in 2012, up 4.7% and 3.7%, respectively. However, both lost market share. GM’s share fell to 17.9% from 19.6% and Ford’s decreased to 15.5% from 16.8%. The big winners in 2012 were Toyota with sales increase of 26.6% and Honda, whose sales increased 24.0%. Both recorded significant increases in market share.
For the near-term, both Ford and GM are recording excellent financial results, largely due to improving sales, despite market share losses, the recession triggered restructuring and lower labor costs, following the 2011 contracts with the UAW. Looking ahead, new vehicle demand is likely to soften, although probably not in 2013. During periods of flat or weak industry demand, market share becomes even more critical.
In addition, 2015 will bring new contract negotiations. While it is impossible to predict what will happen, we do not believe that the current two-tier wage schedule is sustainable over the long-term and the company’s improved financial situation will obviously come into play in future negotiations.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA