Rough road ahead as auto industry mutates
The historic transformation of the automobile industry will generate billions to trillions of dollars for companies and investors. But for traditional automakers, the road ahead will be bumpy, risky and expensive.
That’s the assessment of consulting firm AlixPartners, which released an extensive report this month that uses market research and consumer surveys to lay out some of the major challenges facing automakers — with some interesting findings about Tesla.
The report includes a near-term industry outlook with a darker forecast for U.S. auto sales than most other prognosticators have put forth.
Record-high vehicle sales in 2016 will dive 13 percent from 2017 through 2019, the firm predicted — to 15.2 million vehicles from 17.5 million — in what it calls a cyclical but ill-timed downturn made worse by a “used-car time bomb” as hundreds of thousands of vehicles come off lease all at once.
“That increased used-car supply reduces used-car prices and pulls sales from new to used,” said Mark Wakefield, who heads the automotive practice at AlixPartners. About a third of vehicles are leased, not sold, with a typical lease period of three years.
The downturn is ill-timed, the report said, because impending industry upheaval is forcing major new capital commitments, unfamiliar new partnerships and fundamental shifts in strategy for a future of driverless electrified cars that may be shared and not owned — all this while trying to run a traditional internal combustion car business as the world changes.
“They’re moving toward something that doesn’t connect with 99.9 percent of the business that’s generating good cash flow now,” Wakefield said.
Deciding what to invest in while maintaining enough flexibility to shift with unpredictable turns in technology and the marketplace will be a real trick.
Electric cars inject even more uncertainty. Sales are growing but the base is tiny in the U.S. Despite rich federal and state incentives, they still represent less than 1 percent of the nation’s automobile market.
Yet they’re taking off fast in China and Europe. Last year, the report said, about 350,000 plug-in cars were sold in China, up 84 percent from the previous year and almost twice as many as in the U.S. And while foreign automakers account for the majority of total auto sales in China, the report said 96 percent of those electric cars are made by Chinese companies.
“The Chinese government is saying this is our chance to leapfrog the industry and take a commanding position in a growing space,” Wakefield said.
Meantime, the industry faces the prospect of driverless cars. Every major auto company has already made significant investments in the field, such as Ford’s $1 billion purchase of Argo AI and GM’s acquisition of Cruise Automation, which are aimed at trying to avoid getting rolled over by the likes of Google, Apple and China’s Baidu.