It’s worth pointing out that a PMI reading of 53 percent correlates with GDP growth of 3.6 percent or nearly twice what the U.S. economy has delivered over the last few quarters. The rest of the U.S. economy simply has not matched the strong performance delivered by manufacturing. This is partly because manufacturing is a relatively small part of the U.S. economy, it employs only 9 percent of the work force and contributes about the same percentage of total GDP. So, while manufacturers can congratulate themselves on a decent recovery in 2011, they should worry that manufacturing strength isn’t spreading fast enough throughout the economy at large.
Automotive: Gaining Traction
In the first four months of 2011, U.S. light vehicle sales were 20 percent greater than last year. However, the earthquake and tsunami in Japan slowed U.S. sales because Japanese transplants encountered supply line constraints and, anticipating shortages, many dealers stopped discounting prices of Japanese cars. Ford, GM and Chrysler raised prices and dropped incentives at the same time, which caused sales to soften during the middle months. Sales volumes regained momentum in September and October to an annualized rate of 13 million, even though the prolonged flooding in Thailand reduced deliveries of electronic components needed in some vehicle assemblies. In the fourth quarter of 2011, dealers reported firmer prices and higher margins on sales.
Consumer confidence is still quite weak but the need to replace aging vehicles has turned the auto industry into one of the economy’s bright spots. The average vehicle on America’s roads is 10.6 years old, up from 8.8 years in 2000. That’s helping drive sales, even with the stock market and home prices slumping. The pentup demand is not enough to push the industry to the 15-16 million vehicle sales level of pre-recession years any time soon, but it is creating some new demand.Add to these conditions the recent reorganizations of Chrysler and GM, and the auto industry today is noticeably healthier. Balance sheets are in order, OEM’s are no longer over-producing and selling at too-generous discounts, and you have a genuine need to replace cars. These ingredients should be a good mix of business conditions in 2012 and many auto industry forecasters are estimating an 8-12 percent growth in the year ahead.
Specific to composites, the federal proposal to improve corporate average fuel efficiency standards (CAFE) will serve as a major stimulus to incorporate lightweight materials like composites. The Obama Administration set new standards obliging light vehicles to achieve a CAFE standard of 35.5 mpg by 2016 and the November 2011 proposal from the National Highway Traffic Safety Administration (NHTSA) and the EPA pushed the bar up to 54.5 mpg by 2025. If a top-down mandate is not enough, recent surges in the price of gasoline and the fear of more fuel increases give car owners some real-world, bottomup incentive to select lighter weight, more fuel efficient vehicles. Car makers will need to take several hundred pounds of weight out of their new vehicles if they wish to comply with the new CAFE guidelines. While a daunting challenge, it is an opportunity for design engineers and composites fabricators to collaborate using new resins, glass compositions, innovative reinforcements and fabricating processes to solve problems.