Automotive Industry Challenges

In a recent Polk View on automotive industry challenges, we looked at the impact of Chrysler's and GM's bankruptcies, brand eliminations and dealership closings on consumer attitudes and likely buying behavior. Our ongoing consumer research program painted a picture that wasn’t particularly rosy just a few months back: over two-fifths (43%) of surveyed consumers were likely to defect if their local GM or Chrysler dealer closed; one-third (35%) would be less likely to purchase a brand being discontinued and a similar proportion (34%) said an auto company bankruptcy would make them less likely to buy.

Consumer Attitudes - Impact on Purchase Consideration
Level of Agreement: I am less likely to buy because of...

Fortunately, things are starting to look a little brighter for the U.S. auto industry, with positive signs emerging in a relatively short time. GM's and Chrysler's rapid emergence from bankruptcy and the government's highly successful Cash for Clunkers program have been big factors contributing to the improvement.

While we're clearly not out of the woods yet, there are some signs of an upturn. Chrysler recently announced it's re-signing 140 dealers of the almost 800 closed under bankruptcy protection. As reported in Automotive News, dramatic cost cutting and production cuts, along with Cash for Clunkers sales, have left auto inventories at their lowest levels since 1992 and now automakers are scrambling to build more of their popular models. GM just announced that it's increasing production and calling back laid-off workers at several plants to fill the void. Retailers also report a late model used car sales boom from shoppers who didn't qualify for Cash for Clunkers and the increased traffic is driving service and maintenance business, which are both quite profitable.

Things seem to be boding well for Ford, which gained market share due to the other Detroit manufacturers' duress. Also, Toyota has trimmed its huge losses from last quarter. Economic indicators add to the optimism: the stock market's up, GDP is shrinking less than previously, unemployment is slowing, the housing market may have hit bottom and consumer confidence is showing signs of renewed life.

Let's keep our fingers crossed that the economy, a leaner and meaner GM, and Fiat’s merger with Chrysler all mean that brighter days are ahead for a smaller but "better" auto industry. What do you think? Are things improving for the U.S. auto industry?

Posted by Bruce Giffin, Corporate Market Research Manager, Polk (08.24.2009)