I'm not a forecaster or economist, but an analyst with a dangerous habit of prognostication. I can't miss the opportunity to look forward and talk about what to expect in 2010 and beyond. Everyone is happy that 2009 is behind us; now we have to look forward with some form of optimism.
The economy is showing a slight rebound but slower than desired. Auto sales in the last quarter of 2009 showed signs of hope that people are buying cars and trucks again. With pent-up demand, 13-million vehicles scrapped annually and a new group of driving consumers 30-million strong in 2010, there will be demand for vehicles. Additionally, the used car market is lacking vehicles with the rush on used cars in 2009.
For each OEM the opportunity to capitalize on these consumers is there. Obviously, it's about product. Ford has made arguably the best recovery from poor product in many years. In recent years Ford's product lacked the excitement that the buyers were looking for even though they may have been great products. With their recent revival and focus on products like the Fusion, Taurus, Focus, Fiesta, and F-Series pickup trucks, Ford is back and with a vengeance. They can't help but ride the positive PR wave from the poor performance of their domestic competitors. They were not free from crisis but the lack of a bankruptcy filing led to a positive for Ford, and their return to profitability in the third quarter of 2009 shows they are working diligently to drive out cost and improve performance.
GM has great products and has introduced several of them in the last 12 months and more to come in 2010. The question is the long-term viability of GM and consumer perception of the company. Chrysler has little to show in terms of product and Fiat is well aware of this fact, thus the push for major modifications to existing vehicles and introductions of new products by 2011. The jury is still out on whether this can happen fast enough, but one never knows: Chrysler has been at the brink many times and pulled it out better than anyone would have expected.
The Japanese and Koreans continue their product onslaught around the globe and will continue the pressure on the domestics' market share. It is likely North America will level out with five or six major companies, each with 10 to 15% market share with no major players like GM was in the 70s and 80s. Technology will continue to play a major role with new products including more hybrids, electric, and other forms of alternative fuel vehicles.
The supplier community did remarkably well in 2009 as many companies hunkered down and reduced costs in order to survive as there were 30 to 70% reductions in demand. The prediction of a major tsunami of supplier bankruptcies by analysts didn't happen. The community proved they could fight and survive. Now, the question is whether they can do more with the present level of resources as revenues begin to grow. If 10 people ran purchasing and now there are two, do we go back to 10 as a result of growth or just add two or three people and become more efficient, driving profitability. There will still be several bankruptcies in the future. These will be of the companies that try to go back to the way things were, and that don't heed the warnings of last year and don't adjust their breakeven to the lowest point possible while evolving their culture to a new way of doing business. Those that are not undertaking these modifications will struggle to grow because working capital will not be available for the growth.
Inflation will return with the influx of money being poured into the economy, and without compensation increases consumers will continue to struggle. Exchange rates will play a major role in the shift of manufacturing around the globe and could benefit the U.S. Manufacturers need to seize the opportunities in front of them to become better in design, engineering, manufacturing, and delivery to manage the culture of the new world.
Some analysts are still pessimistic about the future, but most are forecasting huge returns to volume by 2014. It may not be as aggressive as they are predicting, but there will be a return. Companies can expect another long year in 2010 with peaks and valleys for many. But for the most part, the economy and auto industry is headed in the right direction. As usual, the ultimate question is which companies capitalize from the uptick and which are not prepared?