Future brings a fast if bumpy ride

Michael Robinet
Columnist

The past 18 months have been truly challenging for our industry – driving it to the limit.

Capacity reductions, dealer consolidation, brand eliminations and a couple of bankruptcies later on, mean life will be truly different. With this in mind, look for the automotive industry to be presented with a myriad new challenges.

From a legislative perspective, the looming emission and fuel economy standards in the U.S. (and essentially in place in Canada) present a tremendous obstacle for several OEMs who have a substantial distance to go in meeting the 2016 standards. Meeting these will require new technologies, lighter structures, substantial capital and time.

This momentous shift in the vehicle park will determine winners and losers as some OEMs will efficiently modify towards better fuel economy while for others, it may drive them towards irrelevance.

Understanding the next generational age groups will also be critical. As the boomers age and the generation Xers start to shift into their prime wage-earning years, coming up from below will be that unpredictable and electronically driven generation Z population.

Social networking and blog sites have a major impact on purchase decisions for this group. There is little brand loyalty within family members — all buy life-stage vehicles from the same brand and move to the next as life demands.

Today, the next hot trend which generation Y attaches to could last only a short period of time – propelling OEMs to turn their vehicles over much more often with frequent minor refreshes or recontenting. Move quickly or miss the buzz. It almost harkens back to the late ’50s when a ’56 Chevy Belair differed from the ’57 version and so on.

Commanding the attention and wallet of these groups will be an ongoing journey.
Vehicle cadence measures the frequency of product turnover or future product programs as we say in the forecasting business.  

The bar has been permanently raised for all OEMs. Many customers of the Detroit 3 tolerated product cycles that were one and half to two times longer than their Japanese competitors. In this hyper-competitive world, waiting seven years to replace a mid-size sedan is suicide.

In the past, a poor sales year or weak financial performance could mean delaying these actions, waiting to cut tools or refurbish the plant which meant a substantial capital outlay. Delays of 12 to 18 months were common – just build the existing vehicle a bit longer and tart it up with a new colour.  

Today, residuals values are critical and on the radar screen. Letting a vehicle sit on the shelf for too long could ruin the next generation vehicle’s financial performance.

The shift away from leasing within many OEMs will now reduce the natural turnover of customers coming back after the end of a lease.

Over the past 18 months, the industry has had to teach consumers how to buy vehicles again and learn how to find available financing in an ever-increasingly risk-averse market.  Drawing customers to dealerships because they want to buy vehicles instead of having to replace an existing offering will require new marketing campaigns, better products and dealers which will have altered their sales methods to this new reality.

Everyone will be under new pressure to perform given the financial condition of our industry. Challenges will be many – and while it may not be a smooth ride, it will be fast.

Michael Robinet is a Canadian-born global automotive analyst based in Detroit. He can be contacted at m_robinest@yahoo.com