Spending Among U.S. Automakers Expected to be Slow Entering 2013

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Things have been going amazingly well for the U.S. automotive sector. Sales have been booming, production is increasing to meet demand, and profits are flowing into the coffers of the automakers. While the recession hurt this sector arguably more than any other, it has rebounded rapidly. A new approach to how it is allocating capital funds has been a key part of this turnaround. In 2012, the automotive sector reached its pre-recession spending totals, but did so in a much smarter fashion. Looking ahead to what this important sector will do in 2013, we see that spending is expected to be slow at the beginning of the year for a variety of reasons.

Industrial Info is currently tracking only 146 capital or maintenance projects worth an estimated $758 million within the automotive sector that have a planned construction start date in 2013. This is significantly less than most years. However, with sales consistently increasing on a monthly basis and each of the automakers increasing their projections for sales and production on a monthly basis, spending will not stay this low for long.

One of the major factors leading to slower spending was the presidential election. Both the automakers and the unions got out in force on election day and did everything they could to get people to the polls to vote for President Obama. This effort helped secure the union states for the Democratic party and also helped propel the president into a second term in office. However, as this was going on, planning slowed down for the coming year. The automakers hedged their bets on the election and took more of a wait-and-see attitude to planning for 2013, until they knew who the next president would be after the election.

Planning should begin to ramp up in the coming weeks with more capital project activity announced for 2013 and beyond, now that the automakers feel secure about who is running the country. In 2013, we expect to see more of the same kind of projects we saw in 2012: retools, expansions, upgrades and renovations, not grassroot activity in any significant amount. The automakers learned their lesson during the recession. Smaller projects will keep the automakers afloat and prosperous, as they work with the plants they have rather than construct grassroot plants for each and every model of new vehicle.

In addition, spending traditionally slows at the end of a year and in the early portions of the next. The winter and potential for significant bad weather as the Northeast has just experienced keeps spending down for a few months, as automakers make sure that the weather will not hamper any spending efforts. Last year, the mild winter got things off to an uncharacteristic early start, and we saw spending jump faster than usual. Thus far, there are no indications that the coming winter will be an extremely mild one like last year, which has affected planned spending.

The focus in the coming year will be again on electric and electric-hybrid vehicles. The automakers have committed to pushing these lines of vehicles, with each introducing its own version of the electric or electric-hybrid vehicle in recent years. With President Obama back in office, this will remain a priority for the automakers, and we are likely to see increased efforts to push these types of vehicles, which could lead to additional capital expenditures late in the year. The battery makers have hit hard times because of the lower-than-expected demand for electric and electric-hybrid vehicles, with a number of battery plants closing or planning to close in the coming months. That trend may get reversed if the automakers can find a way to generate additional interest in these types of vehicles in 2013.

While the year will start with some low spending numbers when it comes to capital projects planned, there are plenty of reasons to expect this key sector to increase its proposed spending rapidly as 2013 develops. By the end of next year, we should see $8 billion to $9 billion in capital and maintenance investment in the sector, which puts it right in line with pre-recession spending levels. The coming months should be interesting as the automakers ramp up their plans to increase production, and production will increase and spending will go right along with it before too long.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.