Market Overview

GM, Ford, Chrysler Struggling to Keep Up With Sales

It can only be good news for a city that is seen as a decrepit joke across America, but auto sales are growing so fast for the Big Three in Detroit that Ford (NYSE: F), General Motors (NYSE: GM) and Chrysler are facing a battle to keep up with demand.

It is hard to believe that it is only three years since the American auto industry was on the brink of collapse, every news program was having the “too big to fail or not' debate and, overall, things looked very bad indeed.

The beginning of 2012 has painted an entirely different picture, though. This year alone, sales look as if they are going to exceed 14 million, beating 2011's 12.8 million total.

The shift is so unexpected that the carmakers are having to add shifts and hire thousands of workers. Do you hear that America? The automakers are hiring again. More than 38,000 jobs were added by car and parts makers last year, and 13,000 more are expected this year. Those new jobs will mostly be on night shifts, but that is hardly a down-side for the average out-of-work auto worker.

Of course, there is a downside to the success. The sheer volume of sales is, according to USA Today, straining the factory network of the Detroit automakers, as well as the companies that make the thousands of parts that go into each vehicle. As a result, we could see shortages of vehicles that drive up prices.

Let's be honest though – if this problem was put to the three CEOs three years ago, they would have bitten your hand off. As problems go, struggling to keep up with sales is a good one.

Those who supported the bailout can be forgiven for feeling a little bit smug as they see thousands of people find work. Analysts are predicting that, if sales hit 15 million by 2015, another 20,000 jobs will be added.

Factories are hitting capacity and workers are stretched to their limit, and the automakers are faced with the question of how fast to grow, and how big to grow in the short-term. But however you look at it, these numbers represent a stunning comeback and a mighty resurgence for both American car making and the city of Detroit.

Last week, analysts seemed to be concerned about a possible merger between GM and PSA, with Morgan Stanley saying in a research report that Peugeot confirmed it is in talks with a 3rd party while GM refused to comment. “We believe GM is considering all options to address their European business, which has eclipsed pensions as the #1 threat to its financial strength and investment attractiveness.”

Bank of America Merrill Lynch said that it believes the alliance is unlikely. “The most important point is that GM is well on its way to success with sufficient global scale and has one major blemish--Europe. A tie up with Peugeot would not solve GM's European dilemma and would only add, not cut, excess capacity in our view.”

Posted-In: Earnings News Success Stories Analyst Ratings Best of Benzinga

 

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