North America has traditionally been a region of high auto demand and strong supply, but the recent economic downturn in the U.S. caused many American automakers to make drastic changes to their workforce, production lines and vehicle outputs. However, the region's automotive industry has rallied in recent months, with Bloomberg reporting auto sales in the U.S. may reach 16.1 million in 2014. According to Bloomberg, that is 500,000 more vehicles than what experts project for the end of 2013. As the automotive industry fuels regional production and economic strength and more businesses are taking advantage of the competitive manufacturing environment in Mexico, North America is on track to regain its pre-recession strength in the industry.
Rising industry strength may cause issues in the future
As manufacturers in the automotive industry continue to ramp up their auto part and vehicle productions and increase staff levels, many businesses are seeing benefits. Auto News reported strong vehicle sales and streamlined stocks may indicate a recovering North American industry, but some businesses may be expanding too quickly. According to Auto News, a Morgan Stanley study found the industry is expanding at the fastest pace of capacity growth since the 1950s, which may put many automakers in danger of undercutting their own profits.
Automakers are constructing new plants and employing more workers quicker than in past years, yet doing so may disrupt the balance between supply and demand. According to Auto News, the discrepancy between the large number of automakers and the still relatively low number of automotive customers may result in missed sales opportunities and unsold inventory because automakers moved too quickly. However, the rate of growth may slow soon as automakers adjust their business strategies to meet consumer demand.
Yet for many automakers, reducing momentum may not be an option, and with the high cost of building plants in the U.S., some are expanding to Mexico. With the country's low manufacturing costs and geographic proximity to the U.S. consumer market, many manufacturers are able to mitigate the risks of fast growth by keeping their operational costs low. With the U.S. experiencing economic recovery and many consumers beginning to feel comfortable with their finances once more, the pent-up demand for vehicles may cause manufacturers to surpass normal growth rates. Offshoring the production process to Mexico can help manufacturers meet this demand quickly with high-quality products.
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