Economy Outlook: Confidence in U.S. Auto Industry Soars

Français : La BMW 650i exposée devant le dôme ...

Soaring Automobile Industry. (Photo credit: Wikipedia)

Confidence in the U.S. auto industry is running high due to surging sales and record profitability. However, executives’ optimism is tempered owing to increased competition and an expectation that growth in new vehicle sales will slow, many executives in the industry expecting competitive dynamics to become even more intense, leading to a more aggressive use of incentives, with OEMs breaking ranks sooner than expected.

The cautious optimism among most of the survey respondents comes amid a backdrop of positive factors in the auto industry: a 17 percent increase in new car sales over the prior year in August 2013; continued success with new product launches by OEMs and suppliers; and the perception that executives have been maintaining a disciplined approach to financial and operational management.

Overall vehicle sales is expected to grow about 1.4 percent from 2013 to 2017, well below the 10.1 percent pace of 2010 to 2013. Their prediction of 16.3 million vehicle sales in 2017 is lower than most industry forecasts.

Analysts opine that there is a return to the fundamentals of producing great products and more disciplined financial and operational management, which are key drivers of the recent resurgence. However, they believe that slower growth signals a coming fight for market share, as companies will need to take sales from competitors in order to continue growing—a zero-sum game.

In July and August of 2013, a survey of more than 200 executives from more than 75 automotive manufacturers, suppliers, and dealers found:

Key findings:

  • Bullish outlook continues. More than 90 percent of respondents describe the industry as either somewhat better or much better relative to last year. And both suppliers and OEMs say they are reasonably well positioned to face future competitive pressures.
  • More aggressive use of incentives is expected. Operating with tight capacity has enabled OEMs to maintain strong pricing discipline and limit their use of incentives. However, warning signs are beginning to emerge that this may change; more than 40 percent of respondents expect more aggressive use of incentives during the next six months.
  • Industry efforts to drive greater adoption of alternative powertrains continue to face strong headwinds. Respondents expect only 20 percent of cars to be powered by electricity, natural gas, and other alternative power sources by 2020, down from last year’s prediction of 24 percent. Furthermore, these numbers are viewed as highly sensitive to continued government support; without subsidies and infrastructure support, the expected 2020 penetration rate drops to 12 percent.
  • Hyundai and Volkswagen will continue to gain market share. Respondents see Hyundai, Volkswagen, BMW, and Ford continuing to gain market share, while they predict small market share losses for GM, and larger losses for Subaru and Nissan. Notably, the level of confidence in these predictions is significantly lower than it was last year, suggesting that velocity of gains and losses is slowing down.
  • Confidence is high in in-vehicle entertainment, telematics, and the “connected car.” Some 70 percent of OEM respondents say they have compelling value propositions relative to offerings from smartphone makers, wireless carriers, and app makers. Tellingly, however, more than half admit they don’t have integrated solutions in this emerging field. Last year, 38 percent of OEM respondents said they intended to create their own platform for integrating digitization and connectivity.
  • Costs still in the crosshairs.‎ Despite their massive efforts to shed excess capacity, reduce legacy obligations, and streamline operations, auto executives believe there are still significant opportunities to continue cutting costs. Fully 80 percent say cost reduction remains a top priority for their company—but a minority believe cost cutting has given their company a sustainable competitive advantage.

From: Booz & Company and Bloomberg News


**Share this Magazine with your executive co-workers/friends!

Follow the Magazine: (After you have filled in your email address in the column at the right hand side of the screen, a confirmation email will sent to your email address. You will have to confirm it before subscription begins)

Follow us on Twitter:

Like us on Facebook:

**As part of the Magazine’s drive to reward subscribers/followers, we will be providing subscribers/followers special access to exclusive content which will not be otherwise available to normal visitors. Please be sure to subscribe to the Magazine. Many visitors have given us positive comments that they will be bookmarking the site, but as the system is unable to capture a working email address to which the passcodes for exclusive content will be sent, they will miss out on this content. Do note that passcodes are locked to each exclusive content, not a one-for-all access, so do provide a working email address that you check regularly so as not to miss out on them!


4 thoughts on “Economy Outlook: Confidence in U.S. Auto Industry Soars

  1. It’s in point of fact a great and useful piece of information. I am glad that you simply shared this helpful info with us. Please keep us up to date like this. Thanks for sharing.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s