January 7, 2009

Car sales plummet, future of Detroit Three green

CARS/POLITICS - Despite incentives, Canadians put away their wallets and showroom sales plunged 21.2 per cent or more than 25,000 vehicles to 94,423 in December from the same month in 2007, manufacturers reported yesterday.

Canada isn't alone in experiencing the auto industry's blues. Six of the biggest automakers in the USA posted declines of more than 30% each last month to end a disastrous year. Sales of American cars in Japan, Italy, France and other European countries have also slid sharply.

So what does the future hold for the Detroit Three?

GM's Volt is scheduled to arrive in 2010, ushering in a new era of vehicles with electric drive – be they conventional or plug-in hybrids, pure electric vehicles or ultimately, perhaps, fuel-cell powered vehicles.

Most major automakers are working on some form of production vehicle with electric or hydrogen that will come to market within the next two to five years.

These eco-cars will represent a small part of the market initially and their market share will increase only gradually over the next decade. But they promise to equal and probably surpass the numbers of fossil-fuel powered vehicles sold.

That will be a good thing for our economy and for our environment, if – and it's a big if – we are able to match their growing popularity with a commensurate clean, green electrical infrastructure to supply their energy needs.

There will be tonnes of new product arriving on the market in 2009. Among the most important will be the new Honda Insight, on sale in April, and the third-generation Toyota Prius, which will make its world debut in a couple of weeks at the Detroit auto show.

Those vehicles will be joined throughout the year by more hybrids, including the Ford Fusion hybrid, General Motors' hybrid pickup trucks, and hybrid entries from both BMW and Mercedes-Benz.

There will be more diesels, too, with passenger cars and SUVs from Acura, Audi and BMW joining those already offered by Mercedes and Volkswagen.

All those fuel-efficient vehicles play to the apparent mood of the public and, perhaps more importantly, of the politicians who hold the purse-strings so important to the viability of key industry players. But contrary to widespread opinion, they are not necessarily the keys to the recovery of the market or the ailing Detroit Three automakers.

While small, efficient cars and utility vehicles are the dominant players in the Canadian market, highly fuel-efficient vehicles such as hybrids still represent a very small part (well below 5 per cent) of the market.

Listening to some key political decision-makers, you might believe that the woes of the Detroit Three are wholly the result of their failure to anticipate the need for fuel-efficient vehicles. But that is an over-simplification at best.

All three have had hybrids on the market in various guises and many of their conventionally powered vehicles offer class-leading fuel economy. There is no shortage of fuel-efficient vehicles available to consumers from almost every manufacturer.

And with gas prices now way down from their spring and summer highs, sales of trucks rebounded in November to surpass those of cars for the first time this year.

So the problems facing the industry, including the Detroit Three, go beyond just the products on offer.

Fixing the American Auto Industry

The global economic meltdown is the reason the world's auto market has collapsed (with the important exception of Canada, where 2008 will be the second or third-best sales year in history, depending on December's final numbers).

Sales are off by one-third or more in the U.S. and almost to the same degree in Europe and much of the rest of the world, but it's not because people have stopped buying vehicles that are not fuel-efficient – they have stopped buying vehicles of all types.

The primary reason is the lack of credit availability. Manufacturers can't borrow money to finance their operations and product development, dealers can't borrow money to finance their operations and inventories, and consumers can't borrow money to finance the purchase of new cars and trucks.

Even sales of the iconic Prius, which were booming way beyond Toyota's ability to keep up with demand just a few months ago, have fallen dramaically in the U.S. So much so that the company has put on indefinite hold its plans to produce the Prius at a plant under construction in Mississippi.

Reeling under the impact of the sales downturn, both Toyota and Honda are expressing concern not just about reduced profits but unheard-of losses. And almost every automaker worldwide is curtailing production and trimming costs.

The International Monetary Fund forecasts it will be at least late in 2009 before the world economy begins to recover from the results of the financial meltdown we are in, which means it will probably take several months, even years, before it returns to what we have grown to accept as normal.

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