American auto profits showing signs of beating 1990s’ best

‘Different Now’

“The new 16 is better than the old 17,” Kevin Tynan, auto analyst for Bloomberg Industries, said in an interview yesterday. “It’s different now because the products across the portfolio are so much better. Everything is just better, from the cost structure on down the line.”

Consumers are willing to pay higher prices for these new models, which are stuffed with technology that keeps drivers more connected and going farther on a gallon of gasoline. The average price a consumer paid for a Chrysler model rose 3.9% from last year to $32,447, according to researcher Kelley Blue Book. Ford commands an average price of $34,455, up 1.5% from last year, and GM gets $34,527, up 0.7%.

Now Detroit’s greatest challenge is building enough cars, Schuster said. Ford said yesterday it plans to boost North American production in the fourth quarter by 6.8% to 785,000 vehicles. Ford just added a shift of 1,400 workers at a Michigan factory to build more Fusions.

Three Shifts

GM is running its Cruze factory in Ohio around-the-clock on three shifts to keep up with demand for the small car that is up 18% this year. Consumer demand for the Cruze “is unprecedented in Chevrolet for decades,” Alan Batey, head of Chevrolet, said on a conference call yesterday.

“I don’t know when we’ve been in a situation where we don’t have enough inventory because things are good,” said Schuster, 45. “It’s been a very long time. It’s out of my memory bank, for sure.”

Factory capacity constraints could be the biggest roadblock to reaching and surpassing the 2000 sales record, Schuster said. Tynan and LMC each forecast industrywide sales will top 17 million in three years.

“While demand appears strong enough to sustain continued growth, supply could get in the way as many manufacturers already are facing tight inventory for many popular models,” said Alec Gutierrez, auto analyst for Kelley Blue Book. “Assuming that the economy remains on stable footing, we should see demand remain strong enough to support annual sales of 16 million units or more moving forward.”

‘Yellow Flags’

Schuster said LMC projects the industry adding 3.4 million vehicles of capacity from 2010 through 2020 in North America, 2 million of which come from new factories in Mexico.

There remain “yellow flags” in the sluggish economy, such as anemic job and income growth, Tynan said.

“There’s probably more broad economic weakness than the auto numbers would suggest,” Tynan said. “If you just look at the auto sales, you would think we are in full-on recovery and the new boom period. But that’s not the case.”

Fewer Americans filed applications for unemployment benefits last week, the U.S. Labor Department reported today. The jobless claims report showed the four-week moving average, a less volatile measure than the weekly figures, declined to 328,500 last week, the lowest since October 2007, from 331,500.

Spending on cars and housing helped maintain “modest to moderate” economic expansion even as borrowing costs increased, the Federal Reserve said yesterday.

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