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12:08 pm
Wed October 30, 2013

Slow economy doesn't mean slow auto industry

All three Detroit automakers had a solid third quarter.

Chrysler, the smallest of the three, made $464 million, despite a two-month delay in shipping the new Jeep Cherokee, which was plagued with quality issues.  Most dealers will have the cars by mid-November.  CEO Sergio Marchionne says he has higher expectations for profits in the fourth quarter. 

General Motors made $698 million.  That's down more than half from last year's third quarter, due to one-time expenses.  Without those expenses, the automaker would have made $1.6 billion.  The company continues to post strong results in North America, and its losses in Europe are diminishing. GM CEO Dan Akerson says he thinks the company is making progress in going "from a good company to a great company."

Ford Motor Company reported its third quarter earnings last week.  The Dearborn-based automaker made $1.3 billion. 

There are three primary drivers of the U.S. auto industry's strength, even though unemployment is high and GDP growth is weak.

First, there was a massive amount of pent-up demand created by the car sales plunge that happened during the recession.  Today, the average age of cars on the road is more than ten years.  Replacing those aging cars is for many a necessity.  That demand is steadily being released as car buyers head to showrooms. 

Then there's the quality of new cars.  The average person who trades in a ten-year-old car will buy a dramatically better new car, with much-improved fuel-efficiency, appeal, and quality. 

Finally, credit is widely available, and interest rates are low, especially for people with decent credit histories.

The only big constraint to the growth is the supplier sector.  A number of automotive suppliers went bankrupt during the recession, and many others dramatically downsized their operations.  Now, automakers say their suppliers need to ramp up again to forestall a possible bottleneck.  Supplier problems could also be contributing to a rise in recalls.