It is “Auto Show” week in Detroit, as the city hosts the 2017 North American International Auto Show. This week includes press unveils of new and updated models, the latest mobility technologies at the AutoMobili-D pavilion, the charity preview featuring 17,000 auto industry players in tuxedos and long dresses and, of course, predictions for where the automotive market in North America is going in 2017.
Some of those predictions were reviewed at the Association for Corporate Growth’s “Automotive Outlook” event held on January 10th at the beautiful and buzzing Detroit Athletic Club. The featured speakers included Michael Robinet, Managing Director, Automotive Advisory Solutions at IHS Markit (IHS), one of the most respected forecasters in the automotive industry, and Dave Andrea, Executive Vice President of Research for the Center for Automotive Research (CAR), one of the most respected researchers in the automotive industry. As expected with speakers of this caliber, the content was excellent.
Several themes emerged from the forecasts.
The North American Automotive Industry Will Be Flat This Year.
In 2016, a total of 17.55 million cars and light trucks were sold in North America, a record. For 2017, IHS forecasts 17.6 million units and CAR forecasts 17.5 million units. These are great numbers by historical reference, but are further evidence of the “plateauing” of the industry that we have observed recently.
President Elect Trump Has Added Some Uncertainty to the Market.
This sounds like an understatement, but it is worth emphasizing. There is increased uncertainty regarding trade policy, including potential renegotiation of the NAFTA treaty and/or increased tariffs on cars imported from Mexico. There is also increased uncertainty regarding energy policy, including whether the higher Corporate Average Fuel Economy (CAFE) standards, due to become fully effective in 2025, will be relaxed (although product plans are becoming less alterable as we get closer to that date and hybrids already play an increasing role in those plans), and the impact of energy policy and oil prices on car buying decisions. Tax reform may also drive activity in unknown ways.
It is All About the Mix.
The overall automotive market in North America is strong, but not all segments are strong. Light trucks and SUV’s/CUV’s continue to do well; passenger cars/sedans are much softer; and the adoption of electric cars continues to be relatively modest (although the new Chevrolet Bolt, a 238 mile range EV that received the Motor Trend Car of the Year Award for 2017 earlier this week, is expected to be well received – pictured above). This mix impacts OEMs and automotive suppliers in different ways, and both IHS and CAR cautioned attendees to “look beneath the waves/look beneath the water line” (pick your metaphor) to see what is really going on in detail in the market.
Connected and Autonomous Vehicle Development is Accelerating.
The industry is in a modern “race to the moon” to achieve full vehicle autonomy, which is still a ways off, but within the planning horizon. We are moving to Level 3 now – autonomy with driver intervention. While widely adopted, on road Level 5, full autonomy without intervention, is still far out there in the mid-2020’s at best. In my mind, technology will continue to move faster than standards setting and harmonization, infrastructure improvements, and full consumer acceptance. In the interim, automotive companies must operate in the current market, adjust to the emerging ridesharing and car sharing models as Vehicle Miles Traveled continue to be split in different ways, and develop and implement enhanced connectivity and safety features (ADAS) as the march to autonomy continues.
Risk is Rising/Disintermediation Will Occur.
With mobility models changing, nontraditional players coming into the market, political and regulatory uncertainties increasing, and vehicle price increases (with the enhanced content) beginning to challenge affordability for many consumers, the risks in the market are increasing overall. Will OEMs and large Tier 1’s continue to be the technology integrators in the future, or will others increasingly play that role? Players that adapt to these risks most nimbly and correctly will be rewarded, while others will be challenged.
In 2017 overall, it will be a pleasure and thrill to be part of one of the most interesting and watched industries: the mobility industry.