Recent news in the automobile industry continues to trend toward change. Not the kind of changes we saw in the 1970s, when smaller, more fuel-efficient cars took over the market and not the kind of change that saw a shift from station wagons to minivans in the 1980s.
American drivers' tastes have shifted from cars to SUVs and pickups, but worldwide and in places where the open road isn’t quite so beckoning, the shift is away from internal combustion engine-propelled vehicles and, indeed, away from cars altogether.
The automotive industry is slowing down and may affect the economy. The International Monetary Fund reported that the drop in auto sales and production represents a 30 percent decline in global trade. The fall-off in sales that began in 2018 has been dramatic and is continuing through 2019. Moody’s Investor Services predicts more of the same in 2020.
Car sales peaked in 2015 and 2016, but U.S. car registrations have been on a downward trend since 2014. More than a third of new car loans now carry terms of 72 months or longer. The effect of this on consumers is the purchase of more expensive vehicles since monthly payments are more affordable over the longer loan period, resulting in extended ownership as opposed to prior, shorter loans.
Additional factors are also to blame. The European Union and China are rolling out stricter pollution control regulations while wealthier markets are reaching peak demand for automobiles and developing markets are struggling. Profit margins are shrinking as costs rise due to, in no small part, U.S./China tariffs. The uncertainty over Brexit and trade tensions between Great Britain and the EU is adding to the difficulty manufacturers are experiencing. Increasing prices on parts and components, which are sourced worldwide, is being felt across the board.
More resources are needed for research and development of new technology in electric vehicles to meet tighter emissions standards while autonomous driving modes are becoming more mainstream. With pressure from regulations and growing demand for technology, this additional investment for the future is hurting shorter term improvements. In the interim, auto manufacturers need to re-engineer and retool production lines to accommodate and merge EV and hybrid drivetrains with existing designs. All this is sapping automakers' reserves and profits.
The upside is all this investment is slowly paying off. Global sales of EVs saw a 73 percent growth in 2018, but the 1.3 million units sold still pales in comparison to the 86 million cars sold overall.
Consumers are waiting out this burgeoning technology, hesitant to jump into the purchase of a vehicle that’s in its technological infancy. Ride-sharing and car-sharing services have had a major effect on car sales as well. The idea of owning a car and all the costs and responsibilities aren’t that inviting to an eco- friendly younger generation — especially those living in urban areas where parking and traffic are added burdens.
Volkswagen, the world's largest automaker, lowered its sales outlook, stating “vehicle markets will contract faster than previously anticipated in many regions of the world.”
And it’s not just VW that’s preparing. Honda recently shuttered a plant in England and one in Turkey. Nissan and Ford are cutting workers in Europe as well. At the last Tokyo Motor Show, Toyota didn’t display any cars at all; instead they showcased a new mobile medical service that caters to health care. General Motors' attempt to consolidate production and cut overhead by closing seven plants globally resulted in a five-week worker strike that recently ended.
A $48 billion merger between Fiat Chrysler and Peugeot that’s just been finalized places them behind VW and Toyota, pushing GM out of the third-largest automaker spot. This merger highlights the current state of the industry. In the past, a joining of forces between automotive conglomerates would have been geared towards expansion but this merger is more about funding and pooling of resources.
R&D is costly and generally yields long term financial results requiring substantial up front capital to remain competitive. Another benefit of this marriage which will work in Peugeot’s favor is combined development of cleaner vehicles. Previously, Peugeot was forced to buy European Union emissions credits from Tesla to make up for their shortcomings.
Fiat Chrysler Peugeot, which will hopefully come up with a shorter name, isn’t alone. Working relationships between former rivals like VW and Ford, BMW and Diamler, and Honda and GM have been pursued to achieve similar goals.
The very idea of car ownership is experiencing a cultural shift as younger generations lose the passion for vehicles. Chevy once famously referred to their product as “the heartbeat of America” but, it seems, privately owned vehicles are becoming just another homogenized tool of transportation.
Eric and Michelle Meltzer own and operate Fryeburg Motors, a licensed, full-service automotive sales and service facility at 299 Main St. in Fryeburg, Maine. More than a business, cars are a passion, and they appreciate anything that drives, rides, floats or flies.