Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
January 22, 2016
OBSERVATIONS FROM THE FLOOR OF THE SHOW
Industry hits record sales volume in U. S. – Cars plus light duty and medium duty trucks topped 17.6 million in sales volume in 2015, which is an all-time volume record. With the arrival of technology giants Google and Apple to the auto scene, coupled with the lowest gas prices in more than a decade, the industry has great momentum going into 2016 and appears to be poised to continue its streak of excellent performance.
However, some analysts say we cannot avoid the “snake in the woodpile” effect of the Dow’s ugly start and the stock market’s overall bloody nose during the first half of January. AutoNation Chief Executive Mike Jackson expressed concern that the 18 million mark in volume may be the “sales ceiling” and cautioned automakers to control car inventories and keep incentives in check in 2016. Still, equity firm Loomis, Sayles & Co. points out that “All the key metrics that we use to gauge the health of the auto industry are as solid as they have ever been.” A slight recovery in the U.S. labor market resulting in somewhat higher wages is a good sign for growth in car sales this year. Add in affordable gas prices and there is bullishness ahead for 2016 in the auto business, particularly in the truck and luxury car segments.
Sizzling new product reflects quality, design and performance achievements –
Volvo XC90 is Volvo’s luxury SUV and was voted the NAIAS SUV-Truck of the Year, with good reason. Its sharp design and beautiful lines make it an excellent choice for this coveted NAIAS award.
Other “lookers” include the Buick Envision, a sleek compact SUV that puts Buick in the race versus cool brands like Audi and BMW. This Buick is also notable as the first Detroit-brand vehicle to be built in China and sold in the U.S. The Mercedes-Benz E-class is being touted as the closest thing to an autonomous car on the market, offering breakthrough new technology and safety features.
Meanwhile, the Hyundai Genesis G90 gives Hyundai a product that bridges from its everyday models to a luxury brand that could compete effectively with BMW, Cadillac, Audi and Mercedes. At a minimum, even the most loyal BMW and Mercedes owners may begin questioning the price-value gap of $40,000+ between what’s in their garage and the G90. And don’t overlook the Chrysler Pacifica minivan which is an all-new version of the classic family wheels. As USA Today reported, “Chrysler created the minivan, and if the new model doesn’t lead the competition, it’s bad news for the whole Fiat Chrysler group.” Last but not least, check out Ford Motor’s new Lincoln Continental which could represent a critical turning point for Ford to begin vigorously competing again for a leadership spot in the lucrative and all-important luxury segment. Matthew McConaughey would be quite pleased with the hip new look of the Continental I believe…
Speaking of Ford Motor, they absolutely stole the show Opening Day – Perched atop stools on a nicely-rigged stage inside Joe Louis Arena with television celebrity Ryan Seacrest hosting, Ford Motor Chairman Bill Ford and CEO Mark Fields brilliantly held court sharing their future vision of the industry. Their press conference was streamed to screens over at nearby Cobo Center, as several dozen millennial bloggers back at the Ford stand in turn streamed the event to their respective social media networks. An impressive digital display on multiple levels to be sure.
Bill Ford acknowledged that Ford Motor today is in the same spot that his great grandfather was when he built the world’s first automobile, the Model T, over a century ago: “There is a crucial need to create a transportation alternative which is personal, smart mobility,” Ford said. “That means today Ford is no longer just in the business of making cars. Today we are also in the transportation services and smart mobility businesses as well.”
The new Ford market pillars are connectivity – centered on the FordPass app – mobility – which includes ease of access to Uber, car rental options, parking, and more – customer experience – including Ford Guides, a 24/7/365 internet and 800 service in place to help with all transportation needs even for non-Ford customers – Data analytics – which will become the foundation to support a far-reaching loyalty program called Ford Appreciation, where users can amass points to redeem for products and services from Ford and its market partners, McDonald’s 7-11, and others to be named later in 2016. Finally, in conjunction with its autonomous vehicle initiative, Ford reportedly will soon announce a partnership with Google to make driverless cars. Coming in April 2016, FordPass will launch Ford Hubs, which will be virtual and brick and mortar kiosks that offer Apple-like digital help – light on sales and heavy with useful interactive themes. The first Ford Hubs will be located in New York City, San Francisco, Shanghai, and London, offering mobility ideas, solutions, and tasty transportation gumbo for urban dwellers.
Oh, and of course there were a few new cars rolled onto the Joe Louis stage to look at, including the stunning new Ford F-150 Raptor and more. But be ready for a real transformation ahead…Ford Motor is boldly preparing to move out of bounds and outside the lines to explore personal, smart, and digital transportation adventures.
Despite great results, scandals and recalls somewhat marred industry perception and progress – Spending opening day with industry executives, government officials, and media, Volkswagen’s new CEO Matthias Mueller walked the floor and tried his best to atone for the company’s recent emissions sensor-masking debacle in its diesel cars. Mueller was recently appointed to VW’s top job and, as the Detroit Free Press pointed out, “Detroit marks his first visit to the United States and a chance to convince buyers and the U.S government that VW knows how to make this right.” Earlier in 2014, like Volkswagen, Takata was deemed culpable for its faulty, exploding airbags found in the Honda Accord and other cars. Takata created a blemish for the industry by its use of inferior materials and by allowing a defect rate “six to eight times above acceptable limits.”
Much repair work ahead for VW and Takata but, if they can embrace their situation with the same vigorous corrective action that Mary Barra took when General Motors faced its ignition switch failure two years ago, perhaps both can overcome the continued negative fallout they are in the midst of now. Let’s hope so.
As smart connectivity and driver assistance systems are careening toward fully autonomous vehicles, today there are few adequate vehicle data security measures in place. As vehicle-to-everything (V2E) becomes widespread and hackers have become emboldened to strike everything from government servers to corporate databases, the auto industry must think and act preemptively and avoid a scandal as personal mobility trends surge. An issue not to be overlooked.
The industry is making the right choices and doing some good – Mary Barra was quietly appointed Chairman of the General Motors board to make her the first woman ever to take that lofty role. Ms. Barra has proven her mettle over and over again the past two years, leading GM past the defective ignition switch crisis by being honest, being committed to cultural change, and focusing on GM’s bottom line. According to Fortune, “The road back is still long, but Barra’s work can provide the incoming Volkswagen CEO a blueprint on how to address a historic crisis inside a company.” Ms. Barra has no shortage of authenticity, courage and integrity – the hallmarks of great leadership.
In November Ford Motor announced it will invest nearly $9 billion to re-make the company’s manufacturing facilities across the country, including more than $1 billion allocated locally for the Michigan Assembly Plant in Dearborn and the Sterling Heights Axle Plant. When considering Ford’s $4.5 billion electrification investment will add 13 new electric vehicles to its product portfolio, it is clear they are committed to the growth and transformation of the industry. By 2020, more than 40 percent of the company’s global nameplates will come in electrified versions, representing Ford’s largest-ever electrified vehicle investment in a five-year period.
So what’s next? Expect more change and transformation for the rest of this decade and beyond –
Morgan Stanley industry analyst Adam Jonas spoke at World Congress last week and offered some intriguing predictions coming that will transform the auto space. His view is that over the next decade the industry will be segmented into four quadrants as consumers interact with our cars, as follows: 1. We own the asset 2. We share the asset 3. We seek a human driving experience and 4. We seek an autonomous driving experience.
Jonas’ view is that the auto industry will become a shared ecosystem, with autonomous vehicles built via OEM-tech company partnerships, proliferation of shared mobility (Lyft, Uber, et al) and in-vehicle technologies setting the pace of change. His reference to “Autopia” is the unique impact of Telsa, Google and Apple as they cause more industry change – and transform the way consumers view their mobility needs.
Morgan Stanley estimates that today there is a $1 trillion annual car manufacturing opportunity in units sold…contrasted with a $10 trillion ride-sharing opportunity calculated in miles driven. For example, compare Toyota annual sales of ~$250 billion that could be nearly matched by acquiring just 2.5% of the $10 trillion ride-sharing market. Toyota’s entry in this segment would be disruptive.
This measurement creates a huge and lucrative market opportunity for the automakers and their tech alliance partners in the coming decade. Thus it’s easy to see Ford Motor’s shift in strategy and how the other OEMs will follow suit…
Final thoughts:
The electric vehicle segment continues to struggle in its mission to acquire new market share in key global markets, especially in the U.S. The payback on an EV is nearly eight years and must move to four years to make economic sense for the consumer. Add in low gas prices and high cost of batteries and the situation is worrisome to the automakers. But, looking ahead to the next decade, the overall outlook for EVs is upbeat, and that’s why the OEMs and tech companies continue to invest smartly and aggressively today.
- The auto retail segment remains cautiously optimistic – sales and profits are in place but if dealer volume/pricing/product mix are not carefully monitored dealers could be subject to a “bubble” phenomenon before the end of 2017. Over-incenting by the OEMs will accelerate problems as it always does…
- Regional assessment of U.S. market is steady volumes and profit through 2017 and early 2018, barring significant socio-political-economic disaster. Europe should realize a 2-3% growth rate. In China you should expect to see government stimulus coming in 2016. Regarding India, vehicle manufacturing quality is up, and India may be the first global region to experience the “Uber-ization” market effect, where miles driven or used will be the focus of automakers rather that unit sales. Stay tuned…
- BMW CEO Ludwig Willisch commented at World Congress that BMW is forecasting car-sharing, electrification, autonomous wave as key trends as he looks ahead to 2025. He also stated emphatically that missing a truck segment here in the U.S. hurts his overall growth.
There is both risk and opportunity ahead as Silicon Valley now shapes much of the automotive conversation. The future technology trajectory is tricky when you consider historically how different Detroit is from Silicon Valley, from its traditions to its planning processes and its people. The traditional automotive industry is risk averse as it continually faces severe regulatory rigors – in contrast with the attributes of the high-tech industry: risk tolerant, open innovation, open culture. Silicon Valley and its “internet of things” thinking is a boon to the automotive industry at this time because it is forcing the OEMs to approach problem-solving and “ideation” differently. But the issues driving technology alliances between auto and tech companies go wide and deep, creating blurred lines between who is competitor and who is partner.
Phil Biggs is Executive Vice President for the Nashville, TN-based technology company, NeXovation.
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