Issue: May 2012


Auto Sales Buoy Economy



by Shobhana Chandra and Timothy Homan of Bloomberg Ne

Car sales that are running at the fastest pace in four years are poised to reverberate through the world's largest economy as a spillover into production, profits and jobs for Americans may be starting.

Auto purchases have exceeded a 14 million annual rate in each month this year, the strongest performance since early 2008, according to Ward's Automotive Group. Government data show motor-vehicle output contributed half of the first quarter's 2.2 percent economic growth.
General Motors Co., the world's largest automaker last year, boosted its 2012 industry-sales forecast, Ford Motor Co. will add factory shifts and Chrysler Group LLC is stepping up hiring as demand rises.

The resurgence — from assembly lines and dealerships to steelmakers, freight lines and loan providers — signals the U.S. is headed for lasting, robust growth, says Joseph Carson, director of global economic research at Alliance Bernstein LP in New York.
"We're starting to see the spark in the auto sector that was missing initially" during the recovery from the recession, said Carson, a former GM economist. "It tells you there's a certain momentum. A whole host of areas could see the multiplier effect. We're at the beginning of a very long and durable cycle."

Rising employment, an improvement in consumer confidence and a thaw in lending are facilitating the revival in sales of cars and light-duty trucks.
Chad Moutray, chief economist at the National Association of Manufacturers in Washington, estimates each dollar spent in the industry triggers an additional $2.02 of output in the economy.

Data from Ward's indicate demand is holding up. Cars and light-duty trucks sold at a 14.38 million seasonally adjusted annual rate in April, after a 14.32 million pace in March. GM, Toyota and Ford all have raised projections for 2012 U.S. industry sales, and analysts surveyed by Bloomberg predict a 14.3 million total for the year, up from a January forecast of 13.6 million.
"Auto sales are leading the way in consumer spending," said George Magliano, senior principal economist at IHS Automotive in New York.

"It's a function of pent-up demand and all the things that go with an economy that's getting better. It helps everybody when the auto industry does well."

The companies, in "good shape" after having survived the crisis, will improve further as Americans feel encouraged to buy big-ticket items and factories fill orders, Magliano said.
GM regained its rank as global industry sales leader last year after losing it to Toyota Motor Corp. in 2008. Chrysler, the automaker controlled by Fiat SpA, is accelerating plans to increase output at a sport-utility-vehicle plant in Detroit, hiring 1,100 workers in November instead of early 2013.

South Korea's Hyundai Motor Co. and Dearborn-based Ford also will add shifts at U.S. factories this year, and Ford will idle 13 facilities for one week instead of two during its annual summer shutdown

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