A panel of auto industry reporters and editors discussed their observations on the sector, starting with their view of why 2019 feels like a recession for the industry despite relatively solid sales projections.
“Seventeen-plus million vehicles in the United States is not a recession. But at the same time, the froth and the effervescence that has been in this market since roughly 2010, 2011 has definitely flattened out,” said Joe White, global automotive industry editor from Reuters.
Auto companies have been “running recession drills,” with layoffs and plant closings as companies squeeze operations in response to tariff and trade issues, he added. “It’s definitely not as bubbly, and there are real reasons why.”
In fact, Bloomberg News declared a “car recession” just as the Detroit show was kicking off, said Craig Trudell, automotive team leader for the news organization. “A lot of the industry got caught flat footed by this massive shift from passenger cars to crossovers and SUVs.”
“What strikes me is just how much bigger and riskier the bets are that automakers are making right now,” said Joann Muller, automotive reporter at Axios. “Now you have companies completely having to change their business model, saying goodbye to things that they’ve done well for a long time. The idea that you would cut off an arm—which is sedans—is radical…. They’re doing it because they need to figure out where they’re going to put their money going forward.”
White agreed. “These companies are all facing an enormous squeeze. Wall Street, by and large, does not want them to spend more capital.” So where does the investment for autonomous technology, electrification, and other advances come from, he asked? “It comes from [reducing] jobs, it comes from getting rid of the sedans.”
The need for auto manufacturers to efficiently pursue innovation also is leading to alliances such as the Ford/Volkswagen agreement announced during the auto show, the panelists said.
“We have to spread the risk,” Muller said. “Ford and VW in particular are two companies that have some self-inflicted wounds. They find themselves in the position of having to move quickly to shore up the core business so that they can focus on the future. First, we have to see how well they work together.”
Trudell added that the Ford/VW alliance could be a letdown if little comes from it. Regarding electric and autonomous mobility, “they really need to demonstrate that they have a clear plan, and a compelling plan that people can get excited about and not… just a checked box.”
White agreed the announcement was somewhat disappointing because it didn’t move the two companies much further than where they were a few months prior, but alliances in general can make good business sense. “Deploying billions of dollars of capital, one company at a time, to solve the same problem in a slightly different way is not going to be supported by the capital community.”
“I think the Silicon Valley mentality has taken over autos, and it’s like, ‘We need this today, we need it tomorrow,’” Muller said, adding that there’s something to be said for companies that are slow and deliberate. “I think that Ford and Volkswagen should take their time and figure out how to get it right, rather than be first.”
The panelists were skeptical that OEMs and automakers could very successfully branch out into mobility-related revenue lines, such as the now-defunct Chariot shuttle service from Ford. “The problem that these companies have is that these businesses that everybody wants them to expand into are businesses that they are ill-equipped to serve,” White said.
And while automakers may be interested in monetizing the data that will come from connected cars, “they don’t have the data processing capability of a Google or an Amazon,” he added, suggesting that car and tech companies will eventually overcome the distrust and gamesmanship to work together. “Amazon is never going to figure out how to build a car…. They need to find equitable ways to share the data and the intelligence that embedding Alexa in a car will provide.”
Outside of China, automakers don’t see the support for electric cars (EVs) or the infrastructure needed to sustain sales without subsidies. “Regulation is critical to the electric vehicle market. I think we all understand that,” White said.
Indeed, EVs are only getting more expensive, Trudell said. “It’s really hard to walk out of a dealership without spending 30 grand, even on a car that a few years ago you were maybe talking about 18, 20 [thousand]. I think there’s definitely a real question of what’s going to happen without the full incentives.” He added, “I guess the question is if Tesla is able to convince everybody that a compelling electric car can be made affordably. I think up to this point they’ve proven an ability to build a really cool brand and something that is coveted, but unless you’ve got 50 grand to blow, or more….”
Yet automakers continue to manufacture EVs, and if they have trouble selling them without the subsidies they will simply use the industry’s “tried and true method for moving metal, which is slashing the price, adding discounts, incentives,” Muller said. “Then they will pay the price in terms of profit. That’s why I say a world of hurt is coming.”
“I do think that the car companies feel put upon, that they are bearing all the risks for this transition [to EVs],” White said. The government and politicians have created challenges by shifting their own climate change responsibilities on to automakers, “which you won’t take on your own because you’re afraid people are going to riot in the street,” while at the same time demanding manufacturers provide jobs “as kind of a national utility.”
Tesla is likely to continue to dominate the U.S. EV market, the panel agreed. Meanwhile, Elon Musk and his company have “pushed the traditional automakers to move much more quickly than they ever would have before,” Muller said, including changing the dealership model. “It might actually not be Tesla that changes that, breaks through that wall, but I do think we are going to start buying cars in a different way soon.”