“If it ain't broke, don't fix it!"

Saturday, April 19, 2008

Sales Slump: A Bump in the Road or a Blockade?

The last quarter of the previous year and the first quarter of this year are both bad periods for the auto industry. The global oil crisis has affected not only the consumers but the automakers themselves. It is a simple equation, really. A new couple wants to buy a new car. The new car is relatively inexpensive, but the cost of maintaining it exceeds the budget because of the rising cost of fuel. So the new couple decides to put off buying a new car because in more ways than one, commuting is more economical. What took $1,000 a few years back now requires $2,000 annually to maintain. Gas allowances have doubled over the past few years, and this is gradually taking its toll in the auto industry. And this is not only felt in the US, but in other countries as well.

Norman de Bono of the London Free Press wrote:

London lost $341 million in payroll last year from auto sector job losses alone, according to a Canadian Auto Workers analysis of the London and area economy.

The CAW has released a detailed analysis of the impact the automotive industry has had on the London and area economy, and while it has been hit hard by a downturn, it remains a critical industry, Bill Murnighan, a researcher for the CAW, said yesterday.

"This is not just about job losses, but about how important automotive is to this economy," said Murnighan. "We wanted to lay out the facts and it is stunning to see how critical it is. We are trying to make people understand that."

The sector has lost more than 5,000 jobs over the last five years, a third of auto jobs that existed in the city and region a few years ago.

Similarly, Eric Beauchesne of the Montreal Gazette wrote:

The Canadian auto industry, including the parts sector that accounts for the lion's share of its jobs, faces tough times, a report released yesterday suggests. But it expressed confidence some firms will survive and even thrive.

But it's more than a case of being outpaced by the booming energy sector, as exports of autos and parts have been falling in absolute terms, he added. Exports have fallen nearly 20 per cent this decade.

"And the outlook for 2008 is for more of the same," Poloz (Export Development Canada's chief economist) warned.

This trend extends as far as several other countries in Europe. But over-all, Europe is having a slump. In The Earth Times it was cited that:

New European passenger car registrations slumped by 9.5 per cent in March, data released Tuesday showed, as rising oil prices and growing economic uncertainty kept consumers away from car showrooms. The March fall resulted in car registrations dropping by 1.7 per cent during the first three months of the year compared with the same period in 2007, the European Automobile Manufacturers' Association (ACEA) said releasing the figures.

Last month's decline dragged down sales for the major car manufacturers in Europe with the German-based Volkswagen group reporting a 12.5-per-cent fall and its Japanese rival, Toyota posting a 16.5-per-cent drop during March.

The effect in these countries mirrors the 15-year low slump in the US brought about mainly by the oil and the credit crisis. Surprisingly, automakers are able to hold their own because of the increase of sales in Asia, particularly in India and China. But if this trend continues, the auto industry will suffer a tremendous blow, one of which is likely to cause several problems for months, and even years to come. They should try to weather it out, and hope for a favorable change during the coming months.