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Cars and Trucks Can Only Take Us So Far

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One of the truly bright spots in the U.S. economy is the auto industry which had tanked in 2008-09 like never before. General Motors and Chrysler went bankrupt and had to be bailed out by the Federal Government. Even with Uncle Sam involved, Chrysler ended up as a division of Fiat, leaving us with only two major U.S. owned auto companies -- GM and Ford.

This year most experts expect U.S. consumers to buy about 16 million passenger cars, SUVs and pickup trucks which is pretty good compared to where we were a few years ago, but mediocre by historical standards. We bought 17.1 million vehicles in 2001 and hovered between 16.7 million and 16.9 million for the first half of that decade. When sales dipped to 16.5 million in 2006, it led to layoffs by the major auto makers and bankruptcy by several tier one auto industry suppliers. Of course, there was worse to come -- much worse.

Right now industry experts project vehicle sales will continue to climb for a while before topping out at under 17 million in 2016, falling to 15.4 million by 2019. Clearly, the auto market in the U.S. is undergoing profound changes. In the post WWII boom years, it was said that one out of seven jobs in the U.S. was directly connected to the auto industry. When Detroit went into a slump, the country followed. But while the auto industry remains an important part of our economy, and a healthy auto sector is a definite plus, it is no longer as pivotal as it once was.

It is an axiom of the auto/SUV/truck industry that once you pass a certain point where you have recovered the up-front costs of building factories, buying machinery and training workers, every additional vehicle made and sold is pure gravy. Right now GM, Ford and Fiat Chrysler, after mothballing several plants, are operating at roughly at 90 percent capacity -- solid profit territory. Even with all of its recent recall headaches, GM is making profits. The foreign auto companies making vehicles in the U.S. are doing even better because they are not saddled with the United Auto Workers pay scales and restrictive work rules.

But the future for the U.S. auto industry faces new challenges as Americans change their transportation habits and a growing number consider personal vehicles undesirable. The share of the U.S. population carrying driver's licenses declined from 89 percent in 2000 to 83 percent in 2012. Young people living in urban areas use mass transit and rely on rental vehicles when they need one. Also, the auto industry's laudable focus on quality means that cars, SUVs and trucks last a lot longer today than they used to. Fewer people trade in their vehicles for new ones every few years as was once the national custom.

China has become the largest automotive market in the world selling 21.98 million passenger and light commercial vehicles in 2013, headed for more than 35 million by 2020. Fortunately, U.S. auto companies and many tier one suppliers are well established in China and are taking advantage of that robust growth market. In autos, as in most things, our future growth depends on exports.

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Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. July 2014