“The automobile industry is back.”
It’s something you’re hearing a lot of people say these days. There’s a good reason why it’s being said. Record sales in the U.S. gave the sector a much-needed boost in 2015 and sets the stage for mature markets to see continued growth.
There wee 17.5 million vehicles were sold in 2015, up 5.7% from the year before and topping the record 17.4 million automobile sales registered in 2000.
2015 may have been a great year, but the automobile industry trends are flatting out for the future. Some forecasting even puts the industry into a decline, victimized by the ongoing economic cycles in the US market. Higher interest rates on loans, more vehicles in the aftermarket industry, and slumping sales in other regions may all put a damper on the excitement from the recent sales records.
How Global Trends Are Causing Potential Declines
- According to PwC Strategy&, China’s year-over-year growth slowed to 7.3% from a 10% gain in 2014 and a 16% gain in 2013. New vehicle regulations are expected to further curb sales in the future.
- Russia’s automobile sales were nearly 50% lower than their recent 2012 peak.
- Brazil’s sales fell by nearly 1.3 million units, or 30%, from its record high in 2012. That’s a drop that is statistically larger than the entire automobile market in Mexico.
- Yet Mexico is a bright spot, with Mexican auto sales outpacing forecasts in 2015, jumping 19% to more than 1.3 million units. They are expected to surpass 1.5 million by 2021. Installed capacities are also expected to increase in Mexico by 50% by 2021.
- New car registrations in the E.U. rose 9.3% year-on-year, to 12.6 million units, but is still about 6 million units lower than the record year of 2007.
- With 50+ distinct markets, the automobile industry is focusing on the nearly unmotorized region of the Middle East and Africa for strong and consistent sales growth to make up for these previously noted losses.
- In the US, there is one vehicle available for every person above the age of 16. People, on average, own more than one vehicle in the US today.
- The scrappage rate, or the rate at which cars are taken off the road, has also been declining with only 11.4 million cars retired in 2014.
The average age of a vehicle in operation today is over 11 years. It’s the highest that it has ever been. Thanks to a recent surge in economic recovery in the US market, the number of vehicles on the road that are new-to-5-years-old are increasing by percentages in the double digits, but so are vehicles that are 12+ years in age. It’s the 6-10 year-old vehicles that are taking the biggest hit for the automotive industry. With technology changes coming into the industry and globally flat sales despite record sales in the US, the risks of another economic cycle like the US saw in 2007-2009 could be devastating.
The Reason Why New Technologies Could Be a Bad Thing
- By 2025, automaker fleets in Europe and the U.S. will have to average upward of 60 miles per gallon. If oil prices remain low, this becomes more difficult to achieve because of consumer interest in larger, less efficient vehicles.
- Experts believe that petroleum-based vehicle fuel economy can be improved by as much as 75% with combustion breakthroughs focused on maximizing engine efficiency and minimizing the formation of emissions within engine cylinders.
- New services are changing the way people look at vehicle ownership. Shared mobility and connectivity services, according to McKinsey and Company, could result in up to $1.5 trillion in revenues by 2030.
- Car sharing, e-hailing, and other macroeconomic factors could drop sales growth to just 2% annually in the next two decades as they continue to increase. Up to 10% of vehicles sold in the future could be shared or fit-for-purpose vehicles.
- The share of young people [16-24 years of age] who hold a driver’s license dropped from 76% in 2000 to 71% in 2013, but the increase of car-sharing memberships has increased by 30% in the same time period.
- Up to 15% of new cars sold in the future could be fully autonomous, which would then change other factors affecting the automobile industry in unknown ways.
The bottom line is this: automotive manufacturers are going to need to take risks if they’re going to be able to stay competitive. Ford has taken the lead in this area as of late, using aluminum to replace the materials in their F-Series trucks to make them lighter and more fuel-efficient. Consumers could have seen this as a less rugged version of a beloved truck, but the F-150 continue to be the best-selling vehicle of any kind in the US by a large margin – and it had the best gas mileage of any pickup. This is the trend the entire automobile industry is going to need to consider, especially if sales remain sluggish outside the US.
Why Innovation Isn’t a Top Priority
- 56% of automotive executive says that market growth in emerging markets is one of their most important focus points in the coming years.
- 49% of automotive executives say that downsizing and optimizing their internal combustion engine could lead to market stability.
- In 2013, 41% of automotive executives stated that fuel cell electric mobility was a top priority. According to KPMG, only 18% had the same views in 2015.
- Battery electric mobility had a 38% priority rate in 2013, but just a 9% priority rate in 2015.
- Just 3% of executives say that there is a focus on autonomous vehicles within their brands.
- On the other hand, vehicle styling and exterior has risen sharply in importance between 2013 and 2015.
- Fuel efficiency is still rated the #1 purchasing choice that is not yet driven by online services or innovative concepts.
In the previous decade, there was a definite push to make vehicles become more innovative and fuel efficient because of high oil prices. Because oil has dropped dramatically since then, this demand is much less. Some within the industry don’t see these becoming key points of emphasis for another 20 years. The industry adapted to high oil prices and changing driving habits in the past. Now it will need to adapt once again to explore the traditional growth opportunities that are coming back into play.
How The Automobile Industry Can Adapt
- As governments expect automobiles that are safer and cleaner, the industry will need to look at zero-emission technologies. This will become especially important if concepts like the carbon tax get turned into law in the future. Penalties and incentives, according to EY, will drive decision-makers.
- New value propositions will also need to be developed to meet the changing mobility needs of the future consumer. Cityscapes are going to keep expanding, reducing the need for vehicle ownership. Marketing strategies that focus on car-sharing, integrated mobility, and e-hailing can help to keep sales as strong as possible.
- Consumers are also going to be more driven by feature-rich automobiles. From on-board WiFi to third-party services like mileage trackers, consumers will see added value in vehicles that can reduce their long-term operating costs.
- How a car is sold to a consumer is also changing. Customers can research, compare, and even get pricing information about specific makes and models before they ever go into a dealership. This means sales must change from being at the point of sale to formats like social media so that consumers get the information that they need.
- One of the biggest issues facing the automotive industry from a global perspective is the many different vehicle formats that are available. Look for the industry to begin standardizing their platforms to make it easier for consumers to access the aftermarket industry so the life of a vehicle can be prolonged.
- The Autocare Association estimates that the US automotive aftermarket will be worth $273.4 billion in 2017. This is an increase of $35 billion in value in just 4 years.
- Electric and hybrid cars are bringing new opportunities. Hybrid sales have been traditionally strong, but as oil prices fell in 2015 and 2016, their increased costs turned more consumers away than in the past.
The automobile is going to face some challenges in the next few years, especially if there are difficult economic cycles that take place. These challenges, if handled correctly, could bring an amazing number of opportunities to the industry. This is especially true with the growing electric vehicle market, which accounts for less than 1% of all new vehicle registrations in the US right now. 2017 and 2018 will be the key to knowing what steps the industry must take to maximize its potential. For now, the sales records are a nice trophy to look upon to know that the automobile industry is indeed back.
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