NADA/IHS Automotive Forum Brings Industry Heavy Hitters Together in New York

The industry's top executives came together yesterday at the NADA/IHS Automotive Forum in New York City, an industry gathering held in advance of the 2011 New York international Auto Show. Several hundred industry professionals from all areas, including the financial industry, the dealer network, the supply base, and OEM automakers heard comments about the latest forecast for the global auto industry and the US market in particular. Keynote speaker Dan Akerson, General Motors (GM) CEO, built upon comments from IHS Chief Economist Nariman Behravesh and IHS Senior Principal Automotive Economist George Magliano to discuss GM's current situation going into a market plagued by high fuel prices. "One of the things we did was look at what happened in 2008, when we last saw these kinds of fuel price spikes," Akerson told the conference. "I looked for the lessons learned information, and realized that there wasn't any." Akerson said that GM has since come up with a programme called the 120 Plan, which creates a countermeasure plan that would take effect should oil prices hit USD120 per barrel. "We have already begun to enact some of the elements of that plan," Akerson said. "We have moved up the launch of the new 2013 Malibu, and we are expanding our e-Assist hybrid system across more models." Akerson stated that GM is doing well with regards to its dealer improvements as well, addressing the audience that largely comprised dealer executives. "The customer satisfaction rates for our dealers are up 35% through the first quarter," Akerson said. "Right-sizing our dealer network during the bankruptcy was hard, but was absolutely the right thing to do. Today, over 90% of our remaining dealers are profitable, and they're using those profits to invest in people, processes, and facilities," he continued.

A panel of the top Asian automakers' local executives continued the inside look into the industry, with Tom Doll, executive vice-president at Subaru of America; Brian Carolin, senior vice-president of Nissan North America; Bob Carter, group vice-president of Toyota Motor Sales; and Dave Zuchowski, vice-president of sales for Hyundai Motor America. Topics ranged from the impact of the Japanese disaster of 11 March on sales and production throughout the year, to the trend towards electrification and alternative powertrains. Perhaps the biggest revelation of the afternoon: Toyota does not feel that the production impact of the Japanese disaster will affect its US sales in 2011. "We're continuing to evaluate our situation, but we have not made any adjustments yet," said Bob Carter. "Seventy percent of our total volume is built in the US, and those 13 plants are supplied 85% by North American suppliers—only 15% of components are imported, largely electronics. And we have shrunk the list of suppliers we're concerned about considerably: a few weeks ago we tracked 500 parts, now it's less than 150." Toyota feels that the production disruption will just shift buyers from the spring and summer (second and early third quarters) to the early autumn months (late third quarter). "We have 220,000 units in stock, a 52-day supply overall, and 50,000-60,000 units in the short-term pipeline," Carter said. "Supplies for April and May are still very good."

Far less affected is Hyundai, says Dave Zuchowski. "Less than 1% of our component sourcing comes from Japan," he said. "Even so, we are expecting the overall US market to be rather flat this year, and we will be surprised if it goes above 13 million units." Nissan's Brian Carolin expressed his confidence that Nissan would meet its sales targets this year as well, stating that the company would use "everything in its power" to achieve those goals. All of the automakers agreed that none of their development programmes have been affected by the disaster, and that launches due later this year are still on schedule as planned.

Outlook and Implications

No real earth-shattering revelations came about this morning, as the top sales executives in the US market for various automakers continued to spread calming vibes to an audience curious about their reaction to the fallout from the Japanese triple disaster. Despite stating that production will fall by 50% at least for the next several months for certain manufacturers, the Japanese automakers are confident that their sales levels in the US will be unaffected by the production disruption, as production will be made up at the end of the year, and that consumers will be willing to wait for the vehicle that they want if it is unavailable when they shop for it in the second and third quarters. But data presented earlier in the day by Scott Waldron, president of Experian, suggests that this may not be a shift in demand for the Japanese automakers, but may represent an even greater risk of lost volume and market share. Waldron showed that of all the Asian brands, Hyundai was taking sales from just about everyone as it continues its considerable climb out of mediocrity and into a top-tier automaker status.

A confluence of conditions is forming that may prove to be difficult for Toyota and Honda, in terms of sales through the second and third quarters. Even before the crisis, Hyundai was pulling customers from its competitors. The company is not itself experiencing any production issues stemming from the Japanese disaster (and indeed, is actually facing a limiting capacity constraint for its North American plants). Fuel prices are continuing to rise, and the volatility of those prices is driving American consumers to small cars in increasing numbers. In short, it seems unlikely that Americans are going to wait to purchase small cars from Japanese brands throughout the traditionally hot-selling summer months, when there are viable competitors on the market that are already taking business away from established players. Overall volume this year looks likely to drop, as per the latest IHS forecast that takes over 300,000 units out of the US sales forecast for 2011, bringing the anticipated tally down to 12.9 million for the year. But it may also be that significant market share changes occur, if the production disruption beyond May is worse than the Japanese manufacturers are letting on.