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Les Echos, France

How to Explain the
American Car’s Comeback

By David Barroux

The Detroit Auto Show has just begun. This is the time for U.S. manufacturers to declare victory and confirm that the crisis is behind them. But how have the Big Three — General Motors, Ford, and Chrysler — bounced back?

Translated By Laura Napoli

14 January 2013

Edited by Daye Lee

France - Les Echos - Original Article (French)

The first reason for the American car revival is in the U.S. itself. If the Big Three are doing better, it’s primarily because the U.S. market is rising again. The market had collapsed, going from selling over 16 million vehicles in 2007 to just 10 million in 2009 — a true decline.

Since demand has rebounded, nearly 15 million cars were sold in the U.S. last year. If we try to compare the U.S. to Europe, which is still mired in the crisis, we come to realize that the economic slowdown began earlier on the other side of the Atlantic — from 2007— and thus the recovery comes earlier too. In the car market, buyers can postpone their purchases, but after a while, the simple need to replace cars draws demand. This is where America is now.

But why are Americans benefiting from the rebound more than others?

Americans are not the only ones to profit from the market revival. German manufacturers, upscale Japanese manufacturers and even Korean Hyundai and Kia are benefiting from the rebound. However, Americans still control nearly half of their domestic market and, therefore, are able to force a direct impact on their sales. The rebound also owes much to America’s self-inflicted shock therapy. During the crisis, GM and Chrysler went bankrupt. The government nationalized them to prevent their disappearances. But to be reborn from their ashes, the American manufacturers have had to close some twenty assembly plants and renegotiate benefits contracts with their employees in order to lower production costs.

What does that mean?

Historically, the car manufacturing industry is the American dream. It offered high salaries, retirement benefits and health coverage. It was what you would call a “guaranteed delivery.” Now, most of that is finished. Now, we have the era of “defined contribution.” Not only does the manufacturer pay his new employees less than before, he no longer guarantees pensions or healthcare. He gives money to workers so that they can subscribe to private insurance schemes. The economic risk, the impact of inflation, is, in effect, transferred from manufacturer to employee. This is, admittedly, a form of impoverishment.

Is a market that recovers with lower costs a recipe for the rebirth of the American car?

Car makers are also reducing the number of brands they sell — Hummer, for example, no longer exists — and they are developing abroad, particularly in China. But let’s not exaggerate this "renaissance." In 2012, Toyota was once again the number one carmaker, ahead of GM, with 9.7 million vehicles (+22%) compared to 9.2 million for the American automaker (+2.9%). And next year, Volkswagen will almost certainly surpass GM. The Americans are doing better, but they are not alone.



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