Hairpin Turns

Falling oil and commodity prices. Developing economies faltering. A scandal of historic proportions perpetrated by an industry giant. All these factors have created uncertainty in the global automotive market in 2015. However, depending on where you live, there are glimpses of sunlight over the horizon, says Mustafa Mohatarem, chief economist for General Motors. “Be thankful you are in the United States and in the auto industry,” Mohatarem told 200-plus attendees of the inaugural AutoVision Conference held in September in Louisville, Ky. In examining the current state of the economies, Mohatarem says the industry is seeing what he called a “reversal of fortune” between the US and some of the BRIC nations – Brazil, Russia, India and China.

Economic Indicators

“North America is doing great, led by the US,” says Mohatarem, calling it an “an island of stability” in the industry. The US economy remains strong. Innovation surrounding fuel efficiency, lighter material and autonomous vehicles is proceeding. Mohatarem said the US auto industry expects to hit record sales of more than 17.4 million units annually in the next year, and this is a real accomplishment given the way the growth has been achieved.

Part of the strength in the US market is that automakers are relying on customer demand rather than incentive deals. The result is a slow but steady, consumer-led and sustainable growth pattern. In terms of industry location, Mohatarem says, “You want to be in the I-75 corridor.” Meanwhile, Mexico is awash with new projects. Suppliers from around the world are flocking to Mexico for a variety of reasons — proximity to OEMs, lower business costs, experienced workforce and access to markets.

On the other hand, a variety of economic issues are affecting the automotive industry in the BRIC nations, including recessions, falling oil and commodity prices, and, in the case of China, the rebalancing of the economy. After reporting 10 percent annual GDP growth for more than a decade, that number has been knocked down to 7 percent by the Chinese government and is actually believed to be closer to 4 percent. It should be noted that even at a growth rate of between 3 and 4 percent, China’s $10-trillion economy is still a force to be reckoned with. Mohatarem reserved some praise for India, which appears to be doing well economically thanks in part to the growing middle class, albeit moving more slowly. “They didn’t make as many mistakes,” he adds.

Trust Issues

Certainly Volkswagen’s fall from grace has overshadowed most other news coming from Europe this fall. In mid-September, the company was found to have installed software — a defeat device — in its diesel vehicles which activated full pollution controls only when the car was undergoing emissions testing. The US Environmental Protection Agency estimates that during normal driving, the affected vehicles discharged pollutants between 10 and 40 times the legal limit. The emissions cheating has been going on for seven years. It’s believed that more than 11 million cars are affected.

Other European automakers were quick to distance themselves from the scandal. BMW and Daimler both issued statements denying any accusations of emissions equipment manipulation on their diesel engines. In an attempt to manage the crisis, VW hired Dr. Christine Hohmann-Dennhardt as the Board Member for Integrity and Legal Affairs. At VW’s request, Hohmann-Dennhardt was released from her contract at Daimler to take the position, but the ongoing fallout from the scandal will take years to repair.

Brand Finance, an intangible asset valuation and strategy consultancy, said that the emission cheating scandal hit VW’s brand hard. “At Brand Finance’s last calculation VW’s brand value stood at just over US$31 billion, making it the world’s third most valuable auto brand,” said David Haigh, CEO of Brand Finance, in a statement in September. “It appeared to be motoring ahead, brand value having increased from just over US$27 billion in 2014. The developments of the last few days will undoubtedly send this trend into reverse, resulting in $10 billion in lost brand value.”

The Promise and Practicality of Autonomous Driving

Elsewhere in Germany, a Mercedes-Benz Actros truck equipped with the smart Highway Pilot autonomous driving system took to a stretch of the Autobahn between Stuttgart and Denkendorf in early October. The vehicle was piloted by Daimler board member Dr. Wolfgang Bernhard and Winfried Kretschmann, minister-president of the state of Baden-Württemberg.

Kretschmann said autonomous driving marks an important step toward more intelligent and efficient use of infrastructure. “Autonomously driving and networked vehicles improve the flow of traffic and can play a decisive role in helping to avoid traffic jams and relieving the strain on drivers. They also boost traffic safety,” he says. “In view of this, the state government is currently planning to set up a test field for autonomous and partially autonomous driving which will be open to any potentially effective technologies. This project enables the technology and infrastructure required in this connection to be tested and examined on motorways, rural and urban roads. It is also intended to promote the development of the legal framework for autonomous driving.”

Both Toyota and Honda recently announced that they plan to sell autonomous vehicles by 2020. According to Sheryl Connelly, a futurist at Ford Motor Company and a speaker at AutoVision 2015, the number one trend Ford is watching with regard to the future of the automotive industry is the aging population. “Every seven seconds someone turns 65 in the US,” she says. Features like reverse sensing systems and active parking assistance are the building blocks of autonomous cars and the autonomous driving experience, something that could be a boon to the already tech-knowledgeable Baby Boomer population.