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Editorial

Car makers get a grip

Optimism in the manufacturing sector is in short supply. It’s not hard to see why: The country is in the grips of a hotly contested presidential election. Whether its outcome shakes loose the political gridlock of the past few years is anybody’s guess, but it’s safe to say there are a lot of skeptics.

That includes executives at the companies in the best position to invest, something which they generally are not doing. There are plenty of unknowns hanging over the market, at home and abroad.

Meanwhile, that same bug has not let go of U.S. consumers. Though the data show them more confident and spending more freely than a year ago, they are still practicing a form of frugality that worries retailers.

That’s pretty clear from the report Tuesday from the Institute for Supply Management, whose manufacturing index contracted in August for a third consecutive month to 49.6%. Economists surveyed by MarketWatch had expected a reading of 50% or better. Read more about the ISM.

This reflects a lack of orders. Behind the lack of orders is retailers’ fears of getting stuck with unsold inventory.

So how is the auto industry managing to power through these uncertainties?

All three U.S. car makers reported Tuesday strong year-over-year sales gains for August. General Motors Co. sales were up 10%, Ford Motor Co.’s were up 13% and Chrysler August sales were up 14%.

These were much better numbers than industry analysts expected, putting car sales at their highest level since the “cash for clunkers” program three years ago.

One explanation is that the market is still working through several years of deferred purchases. But after a wrenching retooling of the auto industry, consumers are also looking at a well-balanced lineup of well-built cars, loaded with the options they want, at reasonable prices. Credit has made a comeback too, which helps.

This time around, the industry seems to have a pretty good handle on inventory management, resisting the temptation to crank up production at the first sign of better times. Most of the companies have steered clear of heavy summer discounts, protecting margins in the process.

So while economic fear grips much of the manufacturing industry, what was once a badly broken U.S. auto industry is looking almost “recovered,” something we’ll no doubt hear a lot more about over the next few days as Democrats take the podium at their convention in Charlotte, N.C.

Ultimately, the numbers tell the story.

via Jim Jelter at MarketWatch.

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