Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
October 16, 2012 – 9:30 am ET
DETROIT, Mich.– As we approach Election Day, we are once again reminded of how divided our nation has become and that very few issues are easy to resolve anymore. Socio-political disagreements litter the national landscape making it much harder for businesses to get anything done today. Add to that the “everyday” complexity and economic uncertainty affecting the auto industry, and risk of global proportions is created. Planning for future operations is like walking into the minefields. Here is a sampling of the complex issues facing the auto space right now:
Absorb the constant barrage of new regulations. Jim Lentz, CEO of Toyota North America recently remarked that handling the requirements of new regulations while overcoming unnecessary ones is the single greatest challenge the industry faces today. Simply complying with the new CAFÉ standard that the U.S. auto fleet average must reach 54.5 miles per gallon by 2025 alone is daunting. But add to it the new regulations coming to previously undeveloped powertrain and infrastructure segments such as Electric Vehicle (EV), Business-to-Grid (B2G), V2V (Vehicle-to-vehicle), V2I (Vehicle-to-infrastructure), and the regulatory landscape get awfully crowded for the OEMs later this decade. For example, according to Ford Motor Chief Economist Ellen Hughes, EV infrastructure growth is expected to surge from 9500 charging stations presently to 23,000 by 2015. With that growth will come attendant regulatory expectations, and the fundamental question of which OEM has primary responsibility for compliance.
Develop new shop floor talent. With demand for production workers estimated to grow by hundreds of thousands over the next three years alone, it is incumbent upon industry leadership to address workforce readiness issues. Training workers for new manufacturing skills is a challenge. Whether these new workers are union or non-union employees will present a further challenge. For decades, Michigan has lost jobs to southern states as Japanese, Korean and European automakers opened new non-union plants in Tennessee, Kentucky, Alabama, South Carolina, Mississippi and Texas, all right-to-work states. A new consortium, the National Governors Automotive Caucus, currently includes four governors, Bill Haslam (TN), Jay Nixon (MO), Rick Snyder (MI) and Pat Quinn (IL). The intent of the caucus is to address common interests i.e. labor policies, energy policies, workforce training. “The American political landscape is way too divisive and it’s not constructive. We’re trying to find common-ground solutions, and make progress.” Michigan Governor Rick Snyder said recently.
Can suppliers keep up with demand and new technology? In the late 1990’s there were over 30,000 auto suppliers in the value chain. By 2010 that number had been compressed to less than 1000 and, in some cases, merely several hundred. Pressure to perform has never been greater. Suppliers will need to optimize volume of vehicle content while containing build-to-operate costs and balancing investment needs.
Availability and higher costs of key raw materials and trying to create down-line supply chain in emerging markets will be enormous concerns throughout the industry during the decade. Determining location of new assembly plants, the status of tariff and non-tariff policies by region, and matching those and other business decisions with global technology investments will be vital.
Attract the Gen-Y millennials to buy more vehicles. This is the driving force in all OEM marketing. This segment seems to not have the passion to own a vehicle like their fathers and grandfathers did. When they do, they are a fickle and moving target for automotive marketers. Yes, the Kia hamsters make for a cool television ad, but does it sell vehicles? And if so, is it selling in the Gen-Y market?
Millennial trends include delaying adulthood, downsizing vehicle preferences, selecting “luxury smart” and “stealth luxury.” The Gen-Y wants things to be simpler but they are much less predictable, and yet they have do have luxury requirements. Millennial buyers opt for “inconspicuous wealth” and want to keep consumption patterns private mostly. With 20 million new drivers coming this decade, and nearly half of those Gen-Y millennial, their presence cannot be ignored or underestimated.
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