By the end of May last year, 6.2m autos had been sold in the US market, each containing $2700 of chemicals (according to the ACC). The total sales value to the chemical industry was $16.8bn. So far this year, just 3.9m autos have been sold, with a value of $10.7bn.
Recent downturns have always seen a temporary dip in US auto sales. But annual volume between 1995-2007 still stayed within a 15m - 17m range. This time has been different. Annualised volume is currently just 9.9m.
The chart provides some comfort, as it is clear that sales have bottomed recently, as expected. Inventories are also being reduced, with both GM and Chrysler shutting their plants during the Chapter 11 process, although this is very painful for chemical sales in the short-term.
Chemical company boards therefore have some difficult decisions ahead:
• Short-term, they must plan for major capacity cuts, in line with expected auto industry demand. Volume is most unlikely to rebound to the previous 15m-17m range. GM's new business plan assumes a US market of just 10m/year. And the Obama industry taskforce is clearly keen to encourage the industry to focus on profits in the future, rather than volume.
• But they need to target such cuts very carefully. In the medium-term, the move to increase auto fuel economy by 42% could well compensate for at least some of this lost volume. Lighter-weight, more fuel-efficient, autos will require more chemicals and polymers, not less.
Getting this balance right will be complicated, to say the least. CEOs might like to dust out their copy of the blog's 'CEO survival guide' for its advice on how to move forward.