Car sales are likely to shrink by more than a million units this year to fewer than 15 million cars and trucks, the lowest level in the U.S. in more than a decade, according to a forecast issued by Standard & Poor's Ratings Services.
To cope, the leading manufacturers are adopting different strategies.
Germany’s BMW AG is expanding its blue collar work force in the U.S., sending more manufacturing work here to reduce its risk from currency fluctuations.
"The entire auto industry is anticipating a soft year due to the economy,” Lincoln Merrihew, senior vice president of the automotive practice at TNS North America, the research consultancy, tells MoneyNews.
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"BMW is not necessarily growing, even though they are increasing U.S. jobs,” says Merrihew. "Overall, the primary reason for BMW’s manufacturing shift to the U.S. is due to currency issues. If you sell in the U.S., then you should build in the U.S. to avoid erosion of profits. Currency fluctuation is something BMW can’t control. They’re taking the steps necessary to prevent any problems they may experience due to the decreasing value of the U.S. dollar.”
Detroit’s Chrysler LLC is cutting back on production, with a two-week shut down of all its plants this summer, hoping to increase profitability, a move that is not generating a lot of enthusiasm from analysts.
"The work stoppage is only the result of senior people not knowing what to do, so they cut costs, which is the traditional amateur’s approach,” Alan Weiss, president, Summit Consulting Group, an organizational development consultancy, tells MoneyNews.
"Chrysler’s problem is not understanding a market it once knew well and not delivering what the market emotionally craves. They have created a perception of poor execution, labor trouble, and lack of innovation. They have done little since the minivan and Lee Iaocca’s reintroduction of the convertible.”
Chrysler CEO Bob Nardelli, however, insists that he is out to transform his company into the "New Chrysler” and that "new ways of business are taking root” there.
Researcher Edmunds.com reported domestic automakers increased average incentives to $3,424 per vehicle sold in March, up from $3,384 in February — 8.4 percent higher from the prior year — hoping to entice more buyers. That comes just after all of the major automakers — Ford, Chrysler, and GM — reported losses for the first quarter.
Will the promotional pricing lure more buyers? Maybe. "People just want an excellent car at a fair price,” says Anthony Citrano, a consumer in Boston.
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