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Automakers Confident in 2013 Even as Competition Looms

Ford's Escape Vehicles
2014 Ford Motor Co. Escape vehicles sit on a car carrier outside of the Bill Walsh Ford car dealership in Ottawa, Illinois. Photographer: Daniel Acker/Bloomberg

U.S. automotive executives are extremely confident this year about the state of the industry even as some are becoming concerned that profits may be eroded as competition intensifies, a new survey found.

Ninety-six percent of automaker executives who took part in Booz & Co.’s annual confidence survey said they perceive the industry as “much better” or “somewhat better” than a year ago. Among auto-supplier executives, 88 percent said the industry is better than a year earlier.

“The bullishness in the market continues,” Brian Collie, a Booz vice president based in Chicago, said in an interview before the results were released. “The vast, vast majority are seeing strong profitability continuing through to 2014.”

The optimism is driven by an onslaught of new models in showrooms or coming soon along with lower operating costs, according to the annual U.S. Automotive Industry Survey and Confidence Index conducted online in July and August. At the same time, those surveyed are beginning to fret that automakers will offer profit-sapping discounts to keep sales rolling.

More than one in five surveyed said that pricing discipline already is breaking down. The poll was conducted after Nissan Motor Co. cut prices on seven of its top-selling models in May. Full results will be published next month, said Booz, which partnered with Bloomberg News for the survey.

Sales Return

U.S. sales of new cars and light trucks totaled 1.5 million in August, the most in one month since May 2007, as the seasonally adjusted annualized selling pace exceeded 16 million for the first time since October 2007, signaling robust demand. Light-vehicle sales will probably rise to 16.1 million next year, the average estimate of 13 analysts surveyed by Bloomberg.

While the pace of sales remains well off the peak of 17.4 million set in 2000, the industry is much healthier and capable of profiting at lower volumes. General Motors Co., Ford Motor Co. and Chrysler Group LLC, having restructured to take out costs, combined to earn $13.5 billion last year, while industry sales were 17 percent below record levels.

It’s a remarkable change from five years ago, when the auto industry slid into peril after Lehman Brothers collapsed. GM and Chrysler would ultimately file for U.S. government-backed bankruptcy reorganizations in 2009 when industry sales plunged to a 27-year low. Chrysler became majority owned by Fiat SpA as a result of its reorganization.

“In many ways, you’re getting back to a relatively solid, robust level of demand,” Dan Ammann, GM’s chief financial officer, said yesterday in a Bloomberg News auto industry panel discussion in Southfield, Michigan.

Better Cars

The Detroit Three have taken advantage of improving demand and now offer their most competitive vehicles in a generation from top to bottom. When demand was last above 16 million, the large U.S. automakers relied on big pickups and sport-utility vehicles to provide their profits.

“The renaissance in this town is real. It’s exciting, and I think it’s sustainable,” Mike Jackson, chief executive officer of AutoNation Inc., said during yesterday’s panel discussion.

GM’s Chevrolet Spark minicar was a surprise hit while Chrysler’s Jeep Grand Cherokee continues to turn heads. Ford is expanding capacity at its Flat Rock, Michigan, factory because it can’t make enough Fusion mid-size cars in Mexico. Fiat relies on Chrysler to sustain its profit amid losses in Europe.

New Models

A total of 376 models will be introduced in the U.S. from this year through 2015, according to researcher R.L. Polk & Co., compared with 88 in 2011 and 91 in 2010 as the industry dusted itself off from the recession.

Even with increasing confidence, there’s growing concern how automakers will deal with future increased competition. The companies will probably lose their newfound pricing discipline within the next six months, according to 67 percent of executives surveyed.

“Demand is starting to flatten,” Collie said. “The question is: Will that same discipline continue in a flattened environment?”

Fifty percent of automaker executives said they view the U.S. automotive manufacturing renaissance as sustainable within the next three years while only 44 percent found it sustainable beyond then.

“There is this question weighing on everybody’s mind in terms of what’s next,” Collie said.

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