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US auto companies lack pricing power

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading, Leverage, Oil markets
By Paul Hodges on 07-Mar-2011

US autos Mar11.pngFebruary’s data on US auto sales contained good news, and not such good news, for the chemical industry.

• The good news was that sales were relatively strong, as the chart shows (red line), although still below levels seen in the 2005-8 period (black line).
• And higher oil prices are supporting sales of more efficient autos. This should increase polymer sales, as steel and glass is replaced.

• The not such good news was that companies are still using heavy discounts to boost sales:
o GM continued to offer major incentives, plus cheap financing.
o Toyota was also offering large incentives, which will no doubt continue into March, as it seeks to counter news of a further 2.2 million vehicle recall.

This suggests the US auto industry is still suffering from a lack of pricing power, in spite of all the $bns spent in restructuring. This will not make it easy for chemical companies to push through further feedstock-related increases for its raw materials.