Change is on the horizon for the auto industry
There are lots of other folks that have a much better handle on the market than I do, but after being in the auto industry for almost 30 years, one thing I do know is that it’s cyclical.
We’ve had a pretty good run of it for the last number of years but does that necessarily mean that we are at the peak heading for the down side of the cycle? Maybe.
Interest rates in Canada don’t appear to be heading north any time soon. Demographics suggest that the driving age population is only increasing. Competition is hyperintense, ensuring that consumers continue to get more car for essentially the same amount of money.
On the other hand, consumer debt attributed to automobiles is huge.
This comes back to haunt the auto industry in the form of negative equity, as consumers get into longer and longer financing contracts but yet still wish to get into a new vehicle every four or five years.
With some financing programs running seven or eight years, if you want to switch into a new vehicle after only a few years, you will have no equity in your vehicle and will actually owe more money than the vehicle is worth.
However, in pursuit of the next sale, the industry simply rolls what you owe on your old vehicle into the financing of the new vehicle. Voila!
Yet this only perpetuates the cycle of the consumer owing more money on vehicle than it is actually worth.
The automotive industry is also on the cusp of a technological revolution that will completely change the automotive industry as we know it.
It may be open for debate how long that revolutionary change will take, but there is no mistaking that we are transitioning into an industry that we have not seen before. The changes taking place are not only technological but also they are societal.
Climate change is no longer a theoretical concept that may or may not be true, but rather something the effects of which we see in our world around us on a daily basis.
The urbanization of the global community is also having profound impacts on how people live and move. The nexus of technological change is where the automotive industry finds itself.
Advanced vehicle automation — ultimately leading to the so-called “self-driving car” — may well result in some cities or regional areas actually requiring fewer vehicles. That’s because driverless vehicles are optimized for use over the course of a day as opposed to most personal vehicles sitting in driveways or parking lots for more than 90 per cent of the time.
While this future may well be a number of years away, increased urban density may well have the same effect on vehicle sales much sooner.
Along with technological advancements, developments in alternative powertrain technology and fuels will dramatically change the industry.
The binary gasoline or diesel fuel option, along with spark ignition and compression ignition engines that have been the staple of the automotive industry for the past hundred years, will be replaced with a multiplicity of fuel options and powertrain technologies. These range from hybrid, to plug-in hybrid, to full battery electric and fuel cell electric vehicles.
New fuels and powertrain technologies are necessitated to address the climate change challenge as more and more vehicles are placed on the world’s roadways (despite the urbanization trend noted above).
Whether the fourth quarter of 2016 marks the beginning of the end of the seven year long growth cycle we have enjoyed, or if it still has another year or so of growth “legs” in it, I believe that we are at the end of the very beginning of a transition to an automotive industry that will be quantitatively and qualitatively different from the automotive industry we have been involved with for the past century.
This change will have a profound impact on all sectors and individuals that touch the auto industry.
There is not a more exciting or challenging time to be part of this great industry than right now.
