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Automobiles & Trucks OVERVIEW

The automobile industry surged ahead worldwide in recent years, with particularly sharp growth in the U.S.
    and China.
     Analysts at JD Power forecast the global market at 73 million units for 2020.
     This would represent more than a 20% decrease from the previous year, due to the Coronavirus pandemic. Prior to the 2020 Coronavirus pandemic, sales within the U.S.
    were running at very high rates.
     However, total U.S.
    car and light truck sales for 2020 were down about 17% during the first seven months of the year.
     Since automobile factories were shut down for several weeks during the Coronavirus, dealers' inventories were extremely low during mid-2020. U.S.
    car and light truck sales totaled 17.1 million units for full-year 2019, according to NADA.
     For the entire year 2020, sales are likely to be in the 14 million vehicle range. The biggest upward trend in auto sales has been in China.
     While estimates of its annual unit sales vary widely, China has clearly become the world's largest car market with about 23.5 million units sold in 2018.
     For 2019, the China Association of Automobile Manufacturers (CAAM) reported 25.8 million new vehicles sold in China, down 8.2% from 2018.
    However, China's sales are subject to change due to such factors as economic growth, the availability of credit and the regulatory environment.
     China's government

¹ Video Tip

For our brief video introduction to the Automobile industry, see www.plunkettresearch.com/video/automobile.

Prior to the 2020 Coronavirus pandemic, sales within the U.S. were running at very high rates. However, total U.S. car and light truck sales for 2020 were down about 17% during the first seven months of the year. Since automobile factories were shut down for several weeks during the Coronavirus, dealers’ inventories were extremely low during mid-2020.

U.S. car and light truck sales totaled 17.1 million units for full-year 2019, according to NADA. For the entire year 2020, sales are likely to be in the 14 million vehicle range.

The biggest upward trend in auto sales has been in China. While estimates of its annual unit sales vary widely, China has clearly become the world’s largest car market with about 23.5 million units sold in 2018. For 2019, the China Association of Automobile Manufacturers (CAAM) reported 25.8 million new vehicles sold in China, down 8.2% from 2018. However, China’s sales are subject to change due to such factors as economic growth, the availability of credit and the regulatory environment. China’s government has a great deal of control over the market, as, at any time, it may increase sales by encouraging new auto loans, or decrease sales by adding new registration fees or restricting traffic in major cities in order to reduce congestion and pollution.

One of the biggest winners by far in today’s highly competitive automobile market has been Korea, where Hyundai, along with its brand Kia, have enjoyed soaring global sales. Consumers are attracted to their reasonable prices, excellent warranties and world class quality.

There were approximately 284 million cars and light trucks in operation in the United States, as of 2019. Around the world, there were about 1.25 billion cars and light trucks on the road in 2019.

Most major car makers are aggressively pushing their crossover vehicles, which are an excellent compromise in design between sedans and SUVs. They offer large passenger and cargo compartments, good visibility and reasonably good gas mileage. Crossovers are essentially replacing sedans and some vans as the new family car. Ford, for example, is phasing out nearly all of its sedans in its U.S. market, including the Taurus, so that it can concentrate on its highly popular crossovers and pickup trucks. In sedans, Ford will offer only the Mustang and the upscale Lincoln sedans.

Engineers are pushing technological changes in their larger cars and light trucks in order to enhance their fuel efficiency. An excellent example is the launch of the Ford F150 full-size pickup truck that relies on the use of aluminum body panels and advanced engine/transmission combinations to dramatically reduce weight and improve mileage. This truck has been selling in very large numbers in the U.S., as have the Chevy Silverado and Chrysler Ram full-size pickups. Recent low gasoline prices have boosted this trend. Roughly one-third of all light vehicle sales in the U.S. were pickup trucks, as of 2019, with the Ford F-150 holding the greatest market share. Considering the popularity of such trucks, it isn’t surprising that even Tesla has announced its intention to launch an electric pickup.

At the same time, manufacturers are forced to continue to invest in smaller, high efficiency vehicles due to government mandates that they meet high average miles-per-gallon rules. Over the mid- to long-term, manufacturers will emphasize hybrid and electric vehicles. Honda, Volkswagen, Toyota, Hyundai, Nissan and Peugeot all have invested in new, advanced small cars.

Most major luxury brands, such as Mercedes, BMW, Lexus and Audi, have relatively small cars on the market and will steadily introduce a wide range of fuel efficient designs, including electric and hybrid vehicles. BMW introduced its iSeries high efficiency all-electric, as well as hybrid cars.

Both VW and Toyota have announced very aggressive investment in the design and manufacture of advanced hybrids and electrics. These cars will be rolled out globally over the next several years.

There have historically been strong sales for Toyota’s Prius gasoline-electric hybrid car. The company has also made investments that enable it to manufacture hybrid versions of many of its popular models, including the Camry and several models of the Lexus. Hybrids are available from a wide variety of other makers as well, and technology has steadily improved. Nonetheless, hybrids remain a very small fraction of the overall car and truck market due to their relatively high initial costs. Manufacturers have a significant challenge ahead of them in order to produce hybrids and electrics that will generate high demand from consumers. Better batteries with longer driving ranges will be a big help. The automobile industry is looking forward to the eventual development of advanced, long-range batteries at much lower cost. Many of the world’s top research organizations are working steadily on this challenge.

Meanwhile, the use of ethanol as a gasoline additive in America has grown substantially over the long term, whether or not it makes any environmental or economic sense, thanks to requirements enacted by Congress. However, Congress recently dropped its financial subsidies to ethanol.

The rising affluence of consumers in China has been creating both huge opportunities and major problems. China has become the world’s largest user of energy overall and one of the world’s largest importers of petroleum products, partly to fuel its burgeoning fleet of cars and trucks. Streets and highways are clogged with vehicles, to the extent that traffic and smog are nightmarish. Automakers from abroad have raced to establish plants and partnerships in China.

India has also seen significant growth in its automotive manufacturing in recent years, including exports. India-based Tata now owns the prestigious Jaguar and Land Rover brands.

Not to be overlooked are the vast changes taking place in automobile manufacturing plants. Flexible factories have reduced man-hours and cut costs per car, while offering a much wider range of choices for customization by consumers. The wide use of robotics, advanced factory software and lean inventory methods have completely revamped the modern car factory. Today, more than ever, car manufacturers and their suppliers are cooperating in the design and manufacture of new cars in ways that are revolutionizing the entire process. Bankruptcies at GM and Chrysler in 2009 enabled these firms to shed debt, cut employees, renegotiate contracts and dramatically reduce operating costs.

Inexpensive cars manufactured in China are now on the market in many emerging nations. The question is not whether China will export cars and trucks, but whether consumers in advanced markets such as America will be convinced that they offer safety and reliability. Meanwhile, U.S. automakers have made intense demands on their component suppliers for lower prices—these suppliers are, in turn, looking to low-cost production in China, Mexico and elsewhere.

European manufacturers are facing challenges of their own. High costs, tough labor laws and daunting government regulations are constant challenges to manufacturers in Europe. Nonetheless, firms like Volkswagen and Daimler/Mercedes-Benz have found great success in the global market over a period of many decades, often locating plants in nations where their products sell well, including major plants in the U.S.

The thought of the next billion automobile owners/users is either the most intriguing or the most terrifying vision for the near future, depending on how you look at it. Future global demand for cars could possibly outstrip today’s levels, creating immense business opportunities.

However, the combination of ride sharing systems like Uber and autonomous vehicles capable of driving themselves will have very profound effects on automobile manufacturing, usage, sales and ownership patterns. At least in dense urban environments, the result is very likely to be a large proportion of individuals who opt to use shared vehicles rather than user-owned cars.

Surveys show that many young adults have little interest in owning a car of their own, which is vastly different from the attitude that was held by previous generations. U.S transportation analysts reported that only about 25% of 16-year-olds had a driver’s license in 2017, down from almost 50% in 1983. Car sharing is such a strong trend that car rental giant Avis acquired Zipcar, a pioneer in this area. Major automobile makers, when looking to the future, talk in terms of delivering “mobility services” as much as automobiles, while they consider the looming effects of car-sharing and ride-on-demand services.

Car safety has made dramatic progress in recent years, mainly by adopting technologies such as backup cameras, anti-skid, advanced brakes and collision avoidance systems. Now, all major car makers are heavily invested in technologies that will enable cars to essentially drive themselves.

The automobile and heavy truck sectors are rapidly forging ahead with remarkable technologies for self-driving (autonomous) vehicles. The first step is vehicles that communicate with each other while utilizing advanced technologies to safely stay in lanes, regulate speeds and apply emergency braking. (This is referred to as vehicle-to-vehicle communications, and is part of an overall digital strategy known as ITS, or intelligent transportation systems.)

Automobiles have become high-powered computers on wheels, as many automotive systems are now controlled by chips and software. At the same time, auto makers are finding innovative ways to use the latest in wireless and smartphone technologies, including apps, to enhance the entertainment, information and communications capabilities of vehicles. Automotive “infotainment” has become a dominant theme.