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A Big Year for the Big Three

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Feeling optimistic? If so, you’re probably a good candidate to buy a new car in 2012. After all, the average car on American roads is a whopping 11 years old now, so—as at the end of World War II—there’s a lot of pent-up demand, or delayed gratification if you want to call it that.

By traditional standards, 2011 was not a banner year for U.S. auto sales—the automakers got used to 16-million sales’ years (as in 2007). But after a dismal 2009 and 2010, the 12.8 million cars and trucks sold make for an excellent recovery. Sales were up 8.7 percent in December, and 10 percent for all of 2011. Analysts are predicting a 13.6 million year in 2012.

General Motors and Chrysler, most recently seen in bankruptcy court, are now baaaack in a big way. Chrysler, which is soon to bring back the Dodge Dart (Tom and Ray, I hope you’re as excited as I am!), jumped 83 percent in December from the same month in 2010. The Big Three all reported increases in market share after 20 years when the trend was in the opposite direction. Consider this: General Motors had 48 percent of the U.S. market in the 1960s, and 18.8 percent now. GM is still number one, but Ford—with sales up more than 10 percent last month and no bankruptcy-related headaches—is closing in with 16.8 share.

GM's glowing graphics celebrated a strong year. (GM image)The Americans benefited from Japanese losses, thanks to the tsunami and floods in Thailand. According to David Thomas of Cars.com, “Overall, automakers were overcoming a disastrous U.S. economy, and a tsunami in March dealt Japanese automakers a tremendous blow to production of popular cars. Those two storylines directly impacted the top 10 cars of the year in terms of sales.”

Toyota was challenged in 2011, but it still managed a third sales place with the Camry—although sales of the car were down 5.9 percent from 2010. (Flickr/Tomas Aleksiejunas photo)Toyota’s Corolla, Camry and Matrix—in short supply on dealer lots—were all down by single digits last year, though they still placed in the Top Ten. Nissan didn’t take as big a hit from the tsunami, so its Altima ended up in fourth place with sales up 17.3 percent. The Ford F-Series truck (#1), the Chevy Silverado (#2), the Ford Escape (#5), the Ford Fusion (#6), Dodge Ram pickups (#7) and the Chevy Cruze (#10) all acquitted themselves nicely. It’s particularly gratifying to see the Cruze (which comes in an Eco version) doing well, because it’s the kind of compact car Americans had forgotten how to build.

Nissan dodged the natural disasters, and saw Altima sales rise 17.3 percent. (Flickr/Newport Preacher photo)A big worry here is that if they sense the immediate crisis is over, American automakers will go back to business-as-usual. It’s possible they will interpret the slow start of EV and plug-in hybrid sales as a sign that the good old days are back and people want gas guzzlers again. Automotive News polled auto execs and got a lot of pessimism: Two-thirds said hybrid sales (currently between two and three percent of the market) combined with electric vehicles would be as little as six percent of sales in the U.S. as late as 2025.

I think that’s far too low a number, especially since those same execs (81 percent of them) predict larger investments in batteries and cell technology. They’re clearly hedging their bets. The Big Three had the technology (thanks to the billions we poured into the government-sponsored Partnership for a New Generation of Vehicles) to introduce hybrids in the U.S. at the same time Toyota and Honda did, around 2000, but they chose not to go there. With EVs, only Chrysler is a laggard.

What is GM making of the 7,671 Chevrolet Volts it sold in 2011? I’d say it’s a start and, despite the fact that the goal was 10,000 sales, not too bad a result. December was only the third month the car was available in all 50 states, and the company has been beset both by availability problems (the tsunami contributed to that) and, at the end of the year, the battery fires via government crash tests. The latter combined with relentless anti-Volt propaganda from Matt Drudge, Rush Limbaugh and their ilk to dampen enthusiasm for the car (as reported by CNW Marketing Research).

The Volt finished 2011 with its best sales’ month ever. (Chevrolet photo)On January 5, GM sought to put the battery fires issue behind it by announcing a fix, short of a recall, that will allow Volt owners to bring in their cars for a repair that Mary Barra, a senior VP, said would “add some structure allowing load to be spread so it doesn’t cause intrusion into the battery pack or a coolant leak.” The fix, which shouldn’t cost all that much because so few cars have been sold, will be available next month.

Mark Reuss, president of GM North America, told me during a conference call that he didn’t think people are walking around thinking that Volts are bursting into flames on accident impact (as opposed to what actually happened, which is one fire three weeks after a government crash test). He declined to fault the bloggers’ handling of the issue. “The great thing in this country is that we have free speech and everybody is entitled to their opinion,” he said.

Despite all the static, the Volt had its best month ever in December, with 1,500 sold. GM tried to get as many cars on the street at the end of the year, and allowed dealers to sell 2,300 demonstrators. The Volt sales goal leaps to 45,000 in the U.S., which may be hard to achieve without a further price reduction on this $40,000 car (it already dropped $1,000 for 2012).

According to Sam Jaffe, an analyst with IDC Energy Insights, “GM’s decision to price the Chevy Volt out of contention for most American families (as opposed to aggressive pricing to build market share, as Nissan did with the Leaf) might blow up in the company’s face this year. I think GM needs to come down another $3,000 to $5,000 to reach their sales goals this year.”

It’s worth pointing out that Volt owners love their cars, and 93 percent told Consumer Reports that they’d buy the car again—that’s a higher number than the fanatics who swear oaths to be buried in their Porsche 911s. GM remains publicly bullish. “We’ve had six consecutive months of sales growth, with each of the past three months exceeding 1,000 units—and Leaf sales figures as well,” spokesman Rob Peterson told me. “We’ll produce to match demand.”

The big wild card, for the Volt, EVs in general, and even the sale of American gas guzzlers, is the price of oil. The skinny is that if the Iranians carry out their threat to block the Straits of Hormuz, through which flows one-fifth of the world’s oil, then prices could soar past $4 a gallon again—and quickly, too.

The New York Times reported that even a partial blockade could push prices up by $50 a barrel or more—within just days. “You would get an international reaction that would not only be high, but irrationally high,” Lawrence J. Goldstein, a director of the Energy Policy Research Foundation, told the paper. Eek!

The result would be huge pain at the pumps, and nobody wants that. But the public has already shown that $4 is a tipping point that sends them running to the EVs and hybrids that Detroit isn’t sure Americans want. And that, my friend, is why the Big Three are hedging their bets and investing in batteries and electric motors.
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