Sales and production growth will continue, but at a slower pace in 2015-2016. Signs of an aging cycle (now five years off the bottom) include topping out of used-vehicle pricing, which is expected to decline as supply rises, fairly stretched variables on the financing side, with interest rates at a bottom, loan tenors extended (such as 84-month loans) and leasing share now above pre-crisis levels.
On the positive side, average vehicle age is still high, consumer confidence and unemployment have continued to improve and gas prices are low. Other significant trends include:
• Automotive financing demand should remain elevated: Factors driving this trend include continued high new model launch, new technology activity (which drives capital expenditure demand), and rising M&A activity related to supplier needs to gain scale and service global platforms.
• A strengthening U.S. dollar vs. the yen is a longer-term threat to Detroit’s Big Three: The exchange rate could weaken the D3’s (General Motors, Ford and Chrysler) competitive position and prove a windfall to the J3 (Toyota, Nissan and Honda). However, onshoring/reshoring of manufacturing remains a positive trend for the North American auto industry generally, with North American light-vehicle production still gaining domestic share compared to imports.
• Recall activity has come further into the limelight following General Motors’ ignition switch issues and, more recently, Takata’s massive airbag recall: Recall risks tend to rise with new product and technology launches, suggesting the potential for recall activity to remain elevated.
• The auto industry is still in the early stages of key technological advances: These developments are largely related to rising CAFÉ and emission standards, including increasing electrification, light-weighting and powertrain efficiency development. Ford’s launch of an aluminum-intensive body for the Ford F150 (the best-selling vehicle in the U.S.) was a major development in 2014, the results of which will be watched closely in 2015.
• Car ownership may transform over time as new, disruptive business models, such as Uber’s, develop and mature: These megatrends may profoundly shift the industry’s ecosystem over time, offering both threats and opportunities to OEMs and OEM and aftermarket suppliers.
• On the fleet management side, “big data” analytics will increasingly drive optimization of costs, safety and other metrics: Improving fuel efficiency, cheap gas prices, increased product options and safety technologies are also plusses, although higher recall rates and longer up-fitting lead times may be the price paid. Also, increasing vehicle complexity and new materials may lift repair costs.
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