Why the Auto Industry Is Looking Up | Tier10lab
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Why the Auto Industry Is Looking Up | Tier10lab

Why the Auto Industry Is Looking Up
Katie Hibson

After several years of slumping sales, the auto industry has suddenly found itself perfectly positioned to have a record year of profits.

A close observer should take a few curious coincidences into account, do some math and realize that 2013 is looking to be a huge year for the auto industry.

First, the economy is changing. We’re on the rebound—albeit, slowly—but overall signs are showing that things are looking up. Any negative reverberations of the expired, Bush-era tax cuts have yet to be felt throughout the market, but analysts aren’t giving any indication that it will seriously affect the continuing recovery.

Second, freak natural disasters over the past several years resulted in an inventory shortage that left dealerships with empty lots. The 2011 Japanese tsunami left American Infiniti brand lovers in the cold when Infiniti’s lone manufacturing plant was wrecked, destroying over 2,000 vehicles. At the time of the disaster, only a month’s supply of select Infiniti models in the U.S. were on the ground.

In addition to the destroyed existing inventory, tertiary tsunami effects wreaked havoc on production plants that slowed or stopped assembly for numerous other manufacturers. Rolling power outages, flooding and a complete transportation infrastructure breakdown left widespread parts shortages.

The resulting consumer buyer reluctance and global inventory shortage have kept older cars on the road much longer than in pre-recession times. The average American hasn’t bought a new car in eight years, up from when Americans shopped for cars as often as they did for groceries. As a result, the average car on the road is 10 years old.

A rebounding economy, pent-up demand and older cars are the makings of a perfect storm for 2013. And at the end of the day, America is a car country. If they make them, we will buy them.