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Auto industry slide appears to have bottomed out
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While the Cash for Clunkers program has run its course, car sales are increasing, indicating that the auto industry's severe slump may be over.
Overall, auto industry sales increased by about 12 percent in October over September levels, with bailed-out companies General Motors (GM) seeing a 13 percent gain over the previous month and Chrysler an increase of six percent.
But the biggest winner so far is Ford Motor Company, the only member of the automotive Big Three that did not receive a federal bailout. Ford reported a surprising third quarter profit of $997 million, including an operating profit of $873 million, its first since the beginning of 2008. Its core North American operations are profitable for the first time since 2005, and its sales are up five percent from a year ago. GM's sales are also up five percent from year ago levels, while Chrysler sales are down 30 percent over the same period.
Cash for Clunkers, under which the federal government offered rebates of up to $4,500 to people trading in gas guzzlers for new, more fuel-efficient vehicles, appears to have sparked the recovery, beginning the reversal of a steep sales decline.
Ford's return to profitability was also helped by $1 billion in cost cutting, including $300 million in United Auto Workers (UAW) contract concessions and spending $200 million less for materials and commodities, as well as a 2.2 percent growth in market share, primarily at the expense of GM and Chrysler.
While GM and Chrysler are still trying to turn things around, Ford seems on the way to returning to business as usual. Management sees a yearlong profit as possible in 2010 and the company solidly profitable in 2011. To raise more money, $1 billion in common stock will be issued, as well as $2 billion in debt convertible to common stock. Ford employees also see the company as healthy. While UAW officials negotiated further contract concessions, including a freeze on entry level wages, the rank and file rejected the concessions.
