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BusINess » BusINess Story of the Week Business Transportation » Auto industry’s return to ‘normal’ boosts steel

Auto industry’s return to ‘normal’ boosts steel

A Chicago Assembly Plant employee works on the assembly line. A bevy of challenges remain in the auto and steel industries as lower operating rates, high unemployment and reduced levels of consumer demand are expected to temper short-term performance expectations. (Photograph by The Times.)

A Chicago Assembly Plant employee works on the assembly line. A bevy of challenges remain in the auto and steel industries as lower operating rates, high unemployment and reduced levels of consumer demand are expected to temper short-term performance expectations. (Photograph by The Times.)

Improvements in the domestic auto industry will be a key driver to the economic recovery for steel production, analysts and company executives said.

However, a bevy of challenges remain in both industries as lower operating rates, high unemployment and reduced levels of consumer demand are expected to temper short-term performance expectations.

At a steel conference in Chicago earlier this month, Kim Korth, president of auto research firm IRN, said the recent recession seemed worse than prior ones because the automotive industry sustained a lot of damage in a short time. The 43 percent drop in overall light-duty vehicle production between 2007 and 2009 happened in half the time than the last precipitous decline in the late 1970s and early 1980s, according to IRN’s data.

In the short-term, Korth said the auto industry is going to have to work through 17 percent of Americans being unemployed or underemployed and consumer confidence remaining weak among high-wage earners because of concerns about taxation and government spending.

“It becomes some what of a vicious cycle,” Korth said.

“(Companies) aren’t going to add jobs if they don’t think the consumer demand is there. Consumers aren’t going to buy unless they think that they’re going to have a job. Being able to break that cycle is a challenge.”

However, AK Steel Chief Executive James Wainscott said changing demographic trends in the United States support the view that vehicle production will increase closer to pre-recession levels.

“We just have to get from here to there,” Wainscott said.

Between this year and 2020, about 31 million people are going to reach driving age in this country and they will need vehicles, Korth said. But, part of the “new normal” in the auto industry will be increased volatility, fewer vehicles per household, and customers waiting longer period before buying new vehicles.

Korth said the new range of automobile production will be between 12 million and 16 million vehicles produced annually, with the higher level to be considered as a “good” year.

Medium and large-utility vehicles and trucks are seeing the strongest growth in North America, Korth said. In the next two and three years, she said oil prices are going to be at a level that doesn’t provide much of an incentive for buyers to switch to smaller cars.

Roy Platz, director of marketing at ArcelorMittal USA, said steel companies have already targeted their focus on how they will continue to serve the automotive market in the long term. Platz cited changes in the regulatory environment such as increasing vehicle mileage standards, consumer preferences, production costs and societal environmental concerns, all will affect what types of steel products are produced for vehicles.

CRU, a London-based research and consulting firm focused on business sectors including mining and metals, sponsored the three-day conference.

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