Great Expectations: Automakers are once again chasing sky-high sales

Don’t look now, but lofty sales targets are back. After a few years of paying lip service to “right sizing” and “sustainable growth,” everyone from BMW to Volvo is looking to significantly boost sales volumes. Smaller manufacturers such as Lotus and Jaguar, along with startups like Fisker, are going for broke with massive expansion plans. Even General Motors and Chrysler, emerging from bankruptcies intended to eliminate excess capacity, are looking to grow global sales by millions of vehicles. And then there’s the Volkswagen Group, which has made well known its ambition to sell ten million cars worldwide — one million of them in the United States — by 2018.

“Of course these are ambitious goals, and we ask ourselves, ‘Is it realistic?’ [but] we believe we are on pace,” says VW Group sales chief Christian Klingler.

The proliferation of these ambitious and, in some cases, hubristic goals only a few years removed from the doldrums of 2009 — when several automakers were caught overextended by their very zeal to maximize sales — reflects both new opportunities and age-old realities.

First, there’s a basic truth: “The more you sell, the more you reduce your costs,” says Jim Hall, an analyst with 2953 Analytics. Bigger companies net greater economies of scale and, Hall says, have more leverage over suppliers — suppliers automakers increasingly share. In other words, if one company stands still while others expand, it could soon find itself paying more than its competitors for the same tires, steering racks, and batteries.

Then there’s a new land of promise — Asia. After stalling briefly in 2008, car sales in China have resumed their explosive growth, to the tune of 32.4 percent last year, and have been joined by a surge in India. Every automaker wants to be part of the gold rush, and no one is fretting over producing too many vehicles or creating too much capacity.

“The bigger concern is not growing fast enough,” says Kevin Wale, president of GM China, which recently announced plans to double sales to five million vehicles by 2016. “If you overreach in one year, then the next you catch up,” Wale adds.

But it’s not all blue skies. Some worry that down the line, the Chinese government could decide that its domestic industry has gained all it needs from the multinationals (who are required to partner with local automakers) and summarily kick them out. Already, there’s pressure to create China-exclusive brands, something GM has done with its new Baojun (“treasured horse”) marque and Volkswagen is rumored to be doing with a new line called Kaili.

The United States and other more established markets are no less risky places to expand. With overall volume more or less stagnant, picking up sales here requires stealing market share from equally motivated competitors. Surging brands like Hyundai and Subaru have done it the right way, but many companies have resorted to incentives and entered too many new segments. In the end, there will be losers.

“Not everyone’s going to reach their targets,” Hall says, adding, “You hit your sales targets when you have one or more of your competitors helping you.”

And then there are obstacles to growth that are impossible to predict. In early March, Toyota released a five-year plan that projected a seemingly prudent seven percent uptick in its global sales volume by 2015. Three days later, a massive earthquake and tsunami in Japan knocked out a sizable portion of the company’s manufacturing capacity.

Ultimately, though, it seems that no economic depression, natural disaster, or political turbulence can permanently dampen automakers’ fundamental desire to build more and more cars — and the belief that they can sell all of them.

“If you’re going to a football match, are you asking yourself if you’re going to lose?” says VW’s Klingler.