Is the U.S. Auto Industry on Track for a Comeback?

Encouraging data and a glitzy auto show could signal a resurgence for the auto industry.

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More than three years after bad management, a swooning global economy, and foreign competition gutted the U.S. auto industry, car makers are revving up for a comeback at what's likely to be one of the snazziest auto industry shows in years.

The North American International Auto Show opened in Detroit this weekend for a nine-day run, and many eyes are on the annual pow-wow for clues about what's in store for 2012.

The initial signs look good. The past two months have seen decent sales numbers, a trend that's likely to continue as the jobs outlook strengthens and Americans feel more financially secure, experts say. December was a good month for Nissan and especially the "Big Three"—Chevrolet, Chrysler and GM—all of which posted sales increases for the month and year.

[Read: New Economic Data Points to Hope in 2012.]

"The economy is such that people are feeling a little more comfortable about their job outlook and where they're going," says Bruce Belzowski, research scientist at University of Michigan's Transportation Research Institute. Economists forecast U.S. auto sales will jump to about 13.5 million in 2012, up from 12.8 million last year. While 13 or 14 million units sold certainly isn't bad, Belzowski says it's not the 15 or 16 million units auto makers used to enjoy several years ago.

Still, the auto industry's recovery is playing a significant role in bolstering the broader economic recovery in the United States, primarily because automotive manufacturing touches so many other areas of the economy, from manufacturing gas caps to keeping the diner next to the plant open, says Aaron Bragman, senior analyst at IHS Global Insight.

The resurgence in demand also bodes well for the job market. Auto makers have already re-hired nearly everyone they laid off during the recession, Bragman says, and if demand remains elevated, companies are likely to hire more to keep up with production needs.

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Demand is likely to stay elevated, too. The average age of vehicles in the United States is the oldest it's ever been at more than 10 years old. While buying a new car might be a fun upgrade for some, for others it's becoming a necessity.

"In some cases people are looking at [their cars] and saying, 'It's just time, I need to turn the car in,' as opposed to previous cycles where it was largely desire-based and not necessarily need-based," Bragman says.

Auto makers are also releasing some new smaller-scale products, which wasn't entirely unexpected. Americans have been downsizing from mega-sized monster trucks for awhile, and car makers are responding by broadening their selection of mid-sized cars and even sprucing up smaller cars with luxury items that used to be only available on larger models.

"Everyone has kind of stepped down a notch," Bragman says.

Partly due to the earthquake and tsunami that ravaged Japan last year, it's difficult to say whether U.S. brands can hold onto the market share they captured over the past year. Furthermore, the landscape of the auto industry has changed dramatically over the past couple of years as carmakers have restructured and cut their losses on underperforming brands.

[Read: Unemployment Falls to 8.5 Percent.]

"GM canceled four of its eight brands and part of Chevrolet's growth is coming from the fact that the Saturn brand is no longer here," Bragman says.

The big question remains whether Japanese brands can make up the market share they lost due to last year's natural disasters and the increased competitiveness of U.S. brands.

"Everyone is just so much more competitive than they used to be," Bragman says, especially when it comes to U.S. brands, which have completely revamped their business models in some cases. "They've got fully competitive product, they've got fully competitive profitability, and now they've got people actually interested in what they're selling. That's going to be hard for the Japanese."

Twitter: @mmhandley

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