I’m no Nostradamus, don’t own a crystal ball or tarot cards, but I do have a reasonably good Rolodex of respected automotive analysts at major financial institutions; ditto for auto researchers, consultants, journalists and marketers.
These are men and women who make a living telling us what’s going to-, maybe- or just might happen in the industry tomorrow, next week, next month and next year. Curious to see what the experts say is in store for this ever-changing industry, I called a few of them to get their views, opinions and forecasts (asked them to play Nostradamus) on current topics, issues and initiatives that just might be in play five years from now, in 2011.
My queries were open-ended, though focused to specific subjects, including:
• International nameplate market share
• Dealer influence/importance in styling and marketing
• Status of the Big 3
• Impact of auto brands from China
• Alternative fuels – ethanol, E85, etc.
• Styling and design trends
• Marketing/media trends
A few highlights
At a recent meeting of the Automotive Press Association in Detroit, President of Harbour Consulting Ron Harbour noted, “I believe brand market shares in the U.S. will follow the European model. There will be a few manufacturers whose market shares are in the high-teens, but without a majority leader.” Harbour made his prediction known in a Q&A session following presentation of this year’s Harbour Report, the annual industry leading report on factory productivity in the U.S.
When asked what this means for the Big 3 and the timeline involved, he responded, “Their [Detroit 3] market share will drop a few points each. The timeline can be 5, 10 or more years.”
The Harbour Report showed Nissan leading the way in factory productivity, followed by Toyota and Honda factories. Interestingly, four of the top 10 factories belonging to the Detroit 3 are being shuttered this year.
John McElroy, respected automotive journalist and host of the PBS and Speed program, Autoline Detroit, was optimistic about the growth of international brands, adding, “Their market share will definitely go up. In fact, I think this year alone we may see the international brands exceed 50% of the U.S. market.”
He did not see the U.S. marketplace in 2011 as “fractionated as Europe, but there’s no question the U.S. market will look like Europe,” where more automakers will enjoy the pie.
When asked about the future of the Big 3, McElroy had a few pertinent, prescient thoughts:
“There will be no bailout of the domestic auto industry this time around, whether it needs it or not.”
Market Share Position
“A key problem is they are just not bringing in enough first time buyers, a problem that’s been going on for several decades. And we are seeing the results of this. The Big 3 do a reasonable job of holding on to the buyers they have, but they are not bringing in enough new buyers. That’s a key reason why their market share has fallen and continues to fall.”
“Even though Ford and GM are financial basket cases now, in five years time they will have put the legacy costs behind them. I think they are going to make more money than they ever did before but with a smaller slice of the American marketplace. “
McElroy is convinced that both domestic and international automotive companies will need to focus on growing their base of qualified people. “There is a brain drain! It’s not just a U.S. problem. It’s not just for the Big 3. It is a worldwide industry-wide problem especially, in the U.S. and Europe.”
The brain-drain issue is centered, he feels, in the technical and design arenas in the auto industry malaise: “Staff reductions, early retirements and the lack of new skilled staff employees with experience and a good education will have a major impact. My biggest concern is where are the new top level management contenders and technical people? Who is the next product czar, the person who can come up with dynamite product?”
Interestingly, Lee Iacocca, former head of Chrysler is writing a book due next year about just this very problem of the failure of executive leadership in America today, which centers in on the automotive industry, according to The New York Times. Iacocca has already had two phenomenal best-selling books about business management, published by Simon & Schuster.
Never one to lack an opinion or tend toward obfuscation, McElroy was very upbeat and positive about alternative energy sources, as his comments will demonstrate:
Ethanol & E85 – “I’m actually quite bullish on E85 – it’s a major trend and a long one too. Is it the solution to our energy problem? No, it’s not. We’ve just started throwing our best bio-engineers at this, the efficiencies in ethanol and ethanol conversions are getting improvements every day.”
Alternative Fuels Market Growth
“Bio fuels will probably account for 30% of our transportation fuel needs by 2025. 30% is a lot. It’s a great way to go.
Miles Per Gallon
"Some of the numbers are impressive, for example if a SUV which real world gets a combined 15 mpg rating, run it on E85, from a petroleum basis, you’re getting a 100 miles to the gallon. 100 mpg grown in the Midwest, not imported from the mid-east."
“Bio fuels are far more efficient than any hybrid or diesel. In volume production, it only costs about $100 to convert a vehicle to run on E85 versus $5,000 to $7,000 to convert to hybrid, if you can.”
Prices to Consumers
“I believe Ethanol is priced too high. Some may argue with me, but you get about 20% less fuel economy with E85, so the price of Ethanol has to be 20% below that of gasoline or as a consumer from a cost standpoint, you’re going backwards.”
“Just put up the threat of taking down the import tariff on Ethanol from Brazil. Do it and I think it will immediately start to drive down the price of domestic Ethanol. So we can play around with the tariffs just to keep the home grown guys honest.”
Robert Hinchliffe, auto analyst for UBS, which recently published a major research paper on the auto industry, was careful in qualifying his remarks, but quite frank: “New international brands opening factories can produce an additional 1 million vehicles for the U.S. market. This has to impact the Detroit-based companies.”
Reflecting upon what auto sales might be in 2011, Hinchliffe predicted the auto business will be even more competitive than it is today. “It makes it that much tougher for auto companies to design a vehicle or vehicles that stand out. It makes brands and brand reputations more important. So clearly, there’s going to be winners and losers,” he added. “This industry certainly has its work cut out for it. Putting mediocre products out is not the solution.”
Moving to the marketing and advertising part of the automobile business, bureau chief of Advertising Age in Detroit Jean Halliday, an experienced auto advertising journalist and sometimes pundit, predicted automotive advertising budgets will be flat or shrink as the carmakers move even more dollars to more trackable/measurable areas such as online, mobile and video on demand.
She is convinced automakers won’t abandon the national broadcast TV networks, “but the networks will expand deals across their other media platforms, including the Internet.” A trend that began in this year’s network television upfronts, the period when TV networks – both broadcast and cable – prime the pumps to sell advertisers on the new fall schedules.
Sara Stevens, director of marketing solutions for ComScore, the respected Internet research company, noted, “In the first quarter of 2006, broadband (high-speed, quality video) has eclipsed the 60% mark, which means consumers can consume richer content. I think that is relevant in the future to the auto sector where people would like to see a 360 degree of vehicles and richer content about the autos they are going to buy.”
She believes this is a critical component of web search: “Today one out of three people on the Internet go to an automotive site an average monthly basis. In April 2006, the Internet was up 4% in unique visitors while the auto category was up 17%.” Stevens says this is a good sign.
Concerning the increasing diminution of advertising revenue and pages in the traditional buff or enthusiast/buff magazines and money shifting to the Internet, Stevens argues, “There will always be a market for the niche sites – especially buff book fans – available to the auto enthusiast… Fourteen of the top 20 sites currently are 3rd party sites – non-auto-manufacturers. Number one is eBay Motors, followed by MSN, GM, Ford, then, Kelly Blue Book in the top five.”
I asked every person about the influence and importance of a brand’s dealer organization with regard to styling, design and marketing.
“There’s not a whole lot of interest at the factory level in terms of dealer interest or involvement,” said John McElroy. “These are the artists of the industry and they’re not going to willfully take the opinion of their retailers.”
Conversely, Rob Schwartz, executive creative director of TBWA Chait Day, the award winning advertising agency for Nissan and Infiniti, was emphatically supportive of the retail segment of the chain of distribution when he commented to me in a recent email. "We’ll be doing ads on great customer service. Because once everyone is making stylish, fuel-efficient vehicles, great customer service will rise as a real differentiator. And whoever gets a great dealer experience right, will win. Five years from now and beyond."
Coincidently, as this column was being researched, Newsweek magazine’s June 5, 2006 issue had a major article on how America can stay competitive in a global economy. It is part of the publication’s Leadership in the 21st Century series.
In one example, the co-founder of Intel Corporation, Andy Grove, commented to the magazine, “America … [is going] down the tubes … they’re all in denial, patting themselves on the back as the Titanic heads for the iceberg full speed ahead.”
I encourage you to take a few moments and visit newsweek.com – it’s a prediction about our future, not just the automobile industry.