After two years of rebates, low interest rates and other deals aimed to keep consumers car shopping, the North American auto industry is seeing signs of a positive economy for 2004.
Car sales never dipped too far, thanks to an incentives war that kept production above the 15 million vehicle mark through 2002 and 2003, but industry watchers now anticipate that North America is entering the next wave of increasing production.
``We have an economy that's clearly surging,'' said Paul Ballew, director of market and industry analysis for Detroit-based General Motors Corp. ``I am in an optimistic mood, and there is a good basis for where that optimism's coming from.''
North American businesses overall are beginning to add jobs, and those jobs mean that more people can afford new cars, Ballew said during a Dec. 15 conference call with analysts.
``What we are seeing is more sustainable growth,'' he said. ``We are beginning to see some light after a very tough period.''
Vehicle production in North America hit a high of 17.6 million in 2000 before slumping to 15.8 million in 2001 and climbing to an estimated 16 million in 2003. By 2004, forecasters with auto consultants CSM Worldwide of Farmington Hills, Mich., expect production to hit 16.2 million.
Globally, auto sales should continue to rise as economic revisions in China make it easier for people to buy personal cars, said Carlos Gomes, auto industry specialist for Toronto-based Scotiabank Group.
``Despite rapid growth, there are still only three cars per 1,000 people in China,'' he said. ``We expect purchases in China to exceed 5 million before the end of the decade, making it the world's second-largest auto market, only behind the United States.''
Automakers made 3.6 million vehicles in China in 2003.
That same global market also will continue to play havoc with North American suppliers who must compete with lower-wage countries to get their products onto cars and trucks.
``Toolmakers felt it first,'' said Jeff Mengel, a partner with Plante & Moran LLP of Auburn Hills, Mich. ``They've needed to redesign their entire industry for these global issues.''
Not every automotive part or mold is going to go to China or other low-cost countries, Mengel noted. Highly technical parts or components that must stand up to intense aesthetic scrutiny - such as interior trim that must match the grain and color of other pieces - are less likely to travel overseas. But automakers and large auto suppliers increasingly are using the potential cost cutting available from those countries to pressure North American businesses into lowering their prices.
The ``global pricing'' policies, which compare the costs of products made by existing suppliers with those available elsewhere, are another tool used by the industry to cut costs. Contracts removed from existing molders are not necessarily going overseas, Mengel noted. Many are remaining in the region, with other producers that are willing to take lower pay for the same parts.
Some of those companies have a lean manufacturing practice that allows them to make components for less money; others are willing to take a lower profit margin.
A few companies - such as frame specialist Tower Automotive Inc. - willingly have let contracts go, rather than cut their prices. More may follow suit as the auto industry tries to squeeze the supplier base further, Mengel predicted.
``The worst thing you can do is to take on a job that sucks up all your money,'' Mengel said. ``You've got all the risk, and no benefit.''