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US Automakers Fear Sales Gains May be Hurt By Drop in Global Demand

Scene inside US auto factory (file photo)
Scene inside US auto factory (file photo)

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Earnings reports from the big three U.S. automakers show 2011 is off to a good start.

Domestic sales were up 18 percent in January, signaling improved consumer demand in the U.S.  But with automakers becoming increasingly dependent on foreign sales to boost profits, there is growing concern that demand may be cooling off in rapidly growing economies such as China.

General Motors is up 22 percent.  Ford Motors gained 13 percent, and Chrysler jumped 23 percent -- ahead of its initial public offering later this year.

After a tough recession that nearly wiped out GM and Chrysler, Jeremy Anwyl at Edmunds.com says the three U.S. automakers have come back stronger.

"They've gotten their structural costs down.  They are able to make money at much, much lower sales volumes and really the key, I think, is to keep marketing costs, incentive costs in line, not to get too far ahead of the consumer in terms of where the demand is," he said.

But even with improved domestic sales, the continued profitability of U.S. automakers is increasingly dependent on foreign markets.

Last year, General Motors sold nearly 2.5 million cars and trucks in China, more than it sold in the U.S., a first in the company's 100 year history.  

Ford, which sold nearly 600,000 cars in China last year, is playing catch-up. "China is a fantastically big market and growing. You consider that there's 1.3 billion people in China. We're estimating a market of around 14 million cars a year. There's a burgeoning market here for small cars," said J. Mays, Ford's vice president of design.

But the rapid growth in emerging markets may be cooling off.

With Chinese roadways absorbing about 2,000 new vehicles each day, Beijing has begun setting limits on new car registrations to reduce traffic congestion.  

Such curbs could reduce the bottom line for carmakers. But Beijing auto dealer Su Qing says so far, the restrictions have had little effect.

"This month's car sales have increased very fast.  The cars have basically sold out.  It's very possible that there will be new policies restricting car licenses, but I don't think that these new policies will have a big impact on car sales because these cars are a family necessity," Qing said.

After growing more than 30 percent last year to become the world's biggest auto market, Chinese sales are expected to moderate in 2011.  U.S. automakers are confident American cars will continue to make inroads.  

But industry analysts say a more pressing concern right now is rising oil prices - which could crimp global demand and push consumers into buying smaller, less profitable vehicles.

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