Why the Auto Industry Matters

  Everyone is talking about the economy and job growth, especially in this political season.

 

Everyone is talking about the economy and job growth, especially in this political season. Guess what? The auto industry is helping drive that growth. As former vice president Dick Cheney might say, “Big time.”

Listen to Bob Carter, group vice president and Toyota Div. general manager, Toyota Motor Sales U.S.A., speaking at the 2012 Automotive News World Congress last week in Detroit:

After ticking off seven reasons why they believe vehicle sales will be “healthy” in 2012 (1. The “U.S. has the world’s fastest-growing population of any industrialized nation;” 2. The average age of vehicles on the road is far from youthful; 3. Used car prices are high enough that new cars are comparatively affordable; 4. Credit is becoming more available; 5. New car affordability is better now than in the ‘80s and ‘90s, and “our 2012 Camry has the lowest-inflation-adjusted MSRP in its history, according to Edmunds.com”; 6. Vehicle buying intentions are high among consumers (46% say they’re interested in a new vehicle); 7. There is a plethora of new vehicles hitting the market from the OEMs that are highly appealing), Carter stated a consequence, one that shouldn’t be underestimated or overlooked by anyone associated with this industry:

“As a result, we forecast healthy annual auto industry sales of 13.6-million units this year, up around 6%, or nearly another million vehicles on top of last year’s one-million-plus. And auto analysts are projecting the industry will grow by another million units or so next year.”

OK. Sales should go up. But here are some important ramifications of what this means, ramifications that people who underestimate the importance of the auto industry ought to ponder long and hard.

Carter: “All of this is positive news for us and for the U.S. economy because the auto industry is the largest manufacturing sector in the nation.

“In fact, the auto industry is responsible for 8-million American jobs, and the industry expects to add 150,000 new jobs over the next four years, according to the Center for Automotive Research.

“As auto sales improve and jobs expand, our industry will act as a powerful engine that tugs the U.S. economy forward during the next few years.

“And if you still need convincing, take note of this. The auto industry’s current $500-billion payroll ranks only below the Defense Department and Social Security.”

The largest manufacturing sector.

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Toyota Motor Manufacturing, Kentucky. Investment: $5.4-billion. Employment: ~6,600. Annual payroll: $441-million. Annual capacity: 500,000 vehicles. Seems like an economic driver for growth, doesn’t it? And similar figures exist for companies building cars and trucks, whether it is one of the Detroit Three or European- or Asian-based companies.

Eight-million jobs—and more to come.

Yes, more than moderately important.

And there are other factors to take into account. While the industry for the first 100 years or so was largely predicated on gears and pulleys and combustive events that Archimedes might have been comfortable with, in the past few years there has been a significant transformation to the electrical and electronics arena such that cars are driving developments there in a way that is transformative—not only as regards how we get from A to B, but also to companies ranging from Google to iHeartRadio.

To use a now-hackneyed-but-still-germane phrase, “This is not your father’s auto industry,” unless, of course, your father lives and works in Cupertino or its environs.

As the campaign for the presidency amps up we are going to undoubtedly hear things about (1) small businesses being the driver for growth and (2) the auto “bailouts.”

While statistically the former may be the case, and depending on your view of the efficiency of markets the latter is good or bad, here’s something that you might consider that encompasses both.

Go to an area where an auto plant has closed down and look around. Chances are you’ll see a number of bars, restaurants, party stores, gas stations, check-cashing services, dry cleaners—vacant. They’ve closed because all of those former auto workers who had been their patrons no longer show up in that neighborhood every day.

Go to an area where an auto plant has gone up in recent years and look around. Chances are you’ll see places like those in the previous paragraph that are alive and kicking.

So what is the engine for growth?

Let’s not underestimate this industry.