US auto makers expect gradual recovery in 2010 but challenges remain
- Source: Xinhua
- [08:15 December 01 2009]
- Comments
US auto makers will see a very gradual recovery in demand in 2010 after their dramatic restructure while many challenges will still remain, a US auto industrial expert told Xinhua in an interview last Friday.
Bill Russo, founder and president of Synergistics Limited and senior advisor with Booz & Company, has extensive experience in the automotive and electronics industries.
When commenting on US auto market in 2010, Russo predicts a slow recovery in demand in 2010 after the dramatic contraction in 2008 and 2009.
"Many US auto makers have had to dramatically restructure their operations to regain a profitable footing in their domestic market. Starting in 2010, the industry will gradually recover to above 10 million units. However, it will be quite a long time before we see overall industry volumes restored to the pre-crisis levels," he further explained.
While everyone is hoping for a sustained recovery, Russo believes that 2010 will see a very gradual recovery in demand. While media attention seems to focus on the near-term sales performance and forecast, he thinks it is wise to view the market from a longer-term and "macro" perspective.
"The US auto makers have been in decline for almost 40 years, and have not yet addressed the structural weakness that has caused them to lose the loyalty and market share loss that began in the 1970's when the oil crisis caused Americans to seek smaller, more fuel-efficient cars from foreign car makers," he said.
He warned that until US auto makers begin to reverse this trend, their long-term viability is questionable.
When asked about the biggest challenge the US auto makers are facing, Russo said that like all global auto makers, they need to know how to deliver to the market the right products with a proper combination of value, quality and innovation to allow for sustained performance and growth.
"They must also conceive of ways of leveraging their global businesses in order to improve the products and technology offerings for the American consumer. While Ford and GM are challenged to grow domestically, they have been able to enjoy strong growth in China," he said.
"They must find a way to reinvest the proceeds from their global businesses in order to gain competitiveness in the US market. They can achieve this by leveraging the cost structure and scale of their global operations when presenting products to the US market," he added.
When talking about the effect of the US government incentive programs such as cash-for-clunkers, Russo thinks that they did provide some short-term relief, but they only buy time, because they do not provide a sustainable solution that addresses the root cause of the problem.
"They prolong the problem and help sustain companies and brands that would have otherwise been dissolved. Consolidation is often a necessary step that allows the surviving industry players to emerge even stronger," he said.
Regarding the role of the US government in the auto industry, Russo told Xinhua "Ultimately, market forces should prevail and the US government should be careful not to intervene too directly in the business, or they risk becoming a 'benevolent crutch,' without which the Big 3 can no longer walk."
He suggested that the government must stop injecting cash either directly into these companies or into the market as incentives. Instead, government incentives should be redirected toward the root causes of the problem.
