Skip to main content
Sister Publication Links
  • European Rubber Journal
  • Plastics News
web
Subscribe
  • Login
  • Register
  • Subscribe
  • News
    • ITEC
    • Automotive
    • Tire
    • Non-Tire
    • Suppliers
    • Silicone
    • Latex
    • Coronavirus
    • Executive Action
    • Government/Legal
    • Opinion
    • Technical Notebooks
    • International Elastomer Show
    • Women in Tire & Rubber
    • HEXPOL Sponsored Content
    • Goodyear recognized by Lockheed Martin as 'elite supplier'
      EV tire advancements to help secure future
      Lambillotte: Only question on AVs is timing
      CAR official says EV future brighter than autonomous
    • ETRMA: COVID-19 pummels European tire markets in 2020
      New systems solutions advance the sustainability of automotive weatherseals
      3D mapping, navigation from Conti, others on cusp of mainstream
      The new One: Nokian unveils all-season passenger tire
    • ETRMA: COVID-19 pummels European tire markets in 2020
      R&D, Group 1 oils shift keeps Nynas busy
      The new One: Nokian unveils all-season passenger tire
      USW opposes Taiwan tire makers' dumping counterproposal
    • 3D mapping, navigation from Conti, others on cusp of mainstream
      R&D, Group 1 oils shift keeps Nynas busy
      Motion Industries rebrands as 'Motion'
      Proto Labs to buy e-commerce company 3D Hubs for $280 million
    • New systems solutions advance the sustainability of automotive weatherseals
      Arburg: 2021 Technology Days in June will run for 6 days
      R&D, Group 1 oils shift keeps Nynas busy
      Arburg boosts electric machine business with AMK acquisition
    • Proto Labs to buy e-commerce company 3D Hubs for $280 million
      Ace Products & Consulting partners with Wallace Instruments
      Safic-Alcan extends distribution agreement with Momentive
      Momentive aims to grow silicone presence in Asia-Pacific region
    • WCCO task force navigates pandemic, expands communications
      ASTM cancels April meetings as COVID-19 continues impact
      Paycheck Protection Program funding reopens Jan. 15
      Detroit Auto Show canceled; alternative event being planned for September
    • Tero Peltomaki named Cimcorp CEO
      Synthomer CEO MacLean to step down by early 2022
      ARP Materials adds technical sales manager
      Jack Murphy joins Akron Dispersions
    • USW opposes Taiwan tire makers' dumping counterproposal
      India decides against extending carbon black duties
      Hot topics at virtual CES: AVs, air taxis and drones
      Paycheck Protection Program funding reopens Jan. 15
    • Editorial: Against a backdrop of turmoil, M&A deals give glimpse of normalcy
      Column: Pandemic looms over everything in life, business in 2020
      Column: Lessons from the 2020 Best Places to Work
      Editorial: Silicone hit hard by pandemic, expected to bounce back
    • Advancements in synchronous drive belt design for industrial and consumer markets
      Effects of multiple repurposed materials for reinforcements of standard rubber compounds
      Impact of peroxide blends on the cure rate and aged properties in HNBR
      Techniques to detect long chain branching in polymers
    • Rubber Division seeks abstracts for 200th Technical Meeting
      WORD panelists say evolution, authenticity keys to success
      IEC keynote: Communication key to logistics
      IEC speaker: Specialized elastomers may reduce spread of life-threatening pathogens
    • WORD panelists say evolution, authenticity keys to success
      New video celebrates women in rubber industry
      ITEC panelists say women can thrive in tire industry
      Rubber Division planning second Women of Rubber event
    • Sponsored By HEXPOL Compounding
      Faster Access to Your Polymer Compounding Experts Around the World
      Sponsored By HEXPOL Compounding
      Take a walk thru a HEXPOL Lab
      Sponsored By HEXPOL Compounding
      HEXPOL offers a unique selection of High Performance Elastomers to match your application requirements
      Sponsored By HEXPOL Compounding
      It’s what you can’t see that makes the Difference at HEXPOL
  • Blogs
    • Products
    • Wacky World of Rubber
    • New Products: Nova thinks outside the box with sealing tech
      New Products: MonTech introduces 1,500 kN lab press
      New products: 3M introduces new durable, pliable medical adhesive
      New Products: Lanxess launches energy-efficient PU elastomer
    • Wacky World of Rubber: How Trelleborg, teens sealed a spot in the world record book
      Wacky World of Rubber: Of chicken and feet, but not chicken feet
      Wacky World of Rubber: Time to go mattress shopping
      Wacky World of Rubber: Because nothing says football like 'frunk' shrimp
  • Newsletters
    • Rubber in Automotive
    • Silicone News
    • Latex News
    • Sign Up for Newsletters
    • ETRMA: COVID-19 pummels European tire markets in 2020
      New systems solutions advance the sustainability of automotive weatherseals
      3D mapping, navigation from Conti, others on cusp of mainstream
      The new One: Nokian unveils all-season passenger tire
    • Proto Labs to buy e-commerce company 3D Hubs for $280 million
      Ace Products & Consulting partners with Wallace Instruments
      Safic-Alcan extends distribution agreement with Momentive
      Momentive aims to grow silicone presence in Asia-Pacific region
    • Bridgestone bets on guayule as alternative natural rubber source
      Synthomer CEO MacLean to step down by early 2022
      Jack Murphy joins Akron Dispersions
      Synthomer optimistic, raises earnings forecast
  • Multimedia
    • Videos
    • Photo Galleries
  • Directory
  • Resources
    • Classifieds & Mold Mart
    • Sponsored Content
    • White Papers
    • Sponsored By HB Chemical
      The Company Behind the Inventory
      Sponsored By French Oil Mill Machinery
      Process Improvement, Cost Reduction with Custom Press Systems
    • Sponsored By Uncountable Inc.
      Cooper Standard deploys lab informatics platform to synchronize R&D
      Sponsored By Elkem
      LSR Select™: A solution to improve your financial impact in molding applications
      Sponsored By HEXPOL Compounding
      Peroxide Cureable Silicone Injection Molding
      Sponsored By HEXPOL Compounding
      Understanding and Selecting Performance Additives for Rubber Compounding
  • Data
  • Events
    • RPN Events
    • RPN Livestreams/Webinars
    • Industry Events
    • Past Events
    • ITEC Library
    • International Silicone Conference Library
    • 2021 Healthcare Elastomers Virtual Edition
      2021 Rubber in Automotive Virtual Edition
      2020 International Silicone Conference Virtual Edition
      2020 ITEC Virtual Edition
  • Advertise
  • DIGITAL EDITION
MENU
Breadcrumb
  1. Home
  2. News
September 16, 2016 02:00 AM

Disruptors to shape auto industry's future

Chris Sweeney
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    Chris Sweeney
    GM economist G. Mustafa Mohatarem speaks at the CAR event in Taverse City, Mich.

    TRAVERSE CITY, Mich.—The automotive industry may not be sure what is coming next, but looming disruptors definitely will have an impact on its future.

    That was the universal message from the Center for Automotive Research's Sales Forecast Workshop, part of its Management Briefing Seminars held Aug. 1-4 at the Grand Traverse Resort and Spa in Traverse City, Mich.

    The panel included moderator Sean McAlinden, CAR Group's chief economist and vice president for strategic studies; G. Mustafa Mohatarem, General Motor's chief economist; Steven Szakaly, chief economist for the National Automobile Dealers Association; Michael Robinet, IHS Markit managing director; Jeff Schuster, senior vice president of forecasting, LMC Automotive; and Itay Michaeli, director, U.S. autos and auto parts, for Citi Investment Research and Analysis.

    Each shared similarities and differences in opinions, but three core themes emerged—low fuel prices and their impact on future fuel-related regulation; the impact of Millennial buyers; and autonomous technology.

    “The politicians might not believe it, but the U.S. really is an island of stability in a pretty turbulent world,” Mohatarem said. “We've seen Brexit, we've seen turmoil in the Middle East, we've seen the South China Sea issues, we're seeing deep recessions in Brazil and Russia. Compared to anybody else, the U.S., and particularity North America, is doing very well, and we're really a very stable economy.”

    A panel of automotive analysts discuss and project the future of the industry at CAR Group's Management Briefing Seminars. From left: Itay Michaeli, director, U.S. autos and auto parts for Citi Investment Research and Analysis; Michael Robinet, HIS Markit managing director; Steven Szakaly, chief economist for the National Automobile Dealers Association; Jeff Schuster, senior vice president of forecasting, LMC Automotive; G. Mustafa Mohatarem, General Motor's chief economist; and moderator Sean McAlinden, CAR Group's chief economist and vice president for strategic studies.

    Fuel prices to stay low

    All of the economists agreed with one item—oil prices will remain low for the foreseeable future. Mohatarem said a major development to watch will be the next set of countries to develop shale capabilities, which he believes will continue to be a game changer as it migrates outside of the U.S. and Canada.

    “I don't see anything out there that suggests that's about to change,” Mohatarem said of low oil prices. “Once you've developed the shale technology, it can be used in a number of countries. I think Argentina and Mexico will be next because they have very similar geographies as the U.S.”

    Low gas prices also puts pressure on auto makers and their suppliers to meet the 2025 CAFE requirements. McAlinden said hybrid sales are declining, with the Prius off by 25 percent despite there being three times as many hybrid models on the market overall. With the price of oil, and thus the price of gas, low, consumers are flocking toward trucks and other larger-sized models.

    “People are worried that consumers are tapped out, especially in the U.S. market,” McAlinden said. “I think the fuel price freefall is almost permanent and has a lot of meaning for years to come.”

    He said he's worried that the industry has reached a plateau, citing a few key indicators—the lease rate, the fact the industry has to keep extending the length of loans for consumers to afford vehicles and that the industry is moving to higher and higher incentives.

    “These are all warning signs to an automotive economist that things have slowed down,” McAlinden said. “We're resorting to price breaks and other financial gimmicks to keep sales at a certain plateau.”

    Car payments/loans have increased over the last decade from 9.8 percent to 12 percent as a share of personal income, Szakaly said. He also noted that regulations could push the cost of new vehicles higher.

    “We cannot continue to grow the sales and transaction price at a rate that outpaces wage growth,” Szakaly said. “Consumers are simply not going to be able to continue to make those increased payments and increased loan terms.”

    Mohatarem has a more positive outlook, at least in the near term. He believes the industry is still on track for another record year. But he added that the economy has been slow to recover from the Great Recession and for it to further pull itself out, the housing market will have to play its traditional role.

    “The strong fundamentals of the economy are reflected in vehicle sales,” Mohatarem said. “The auto sector has led this recovery and has behaved very much like it typically does in a recovery. Last year we had an all-time record for vehicle sales in the U.S., and in Canada and Mexico also. I stay on the path that this year will be a new record. I don't see any fundamental change in the economy.”

    Chris Sweeney

    CAR Group's Sean McAlinden address the attendees at the CAR seminars.

    Delayed Millennial impact

    Long term, Szakaly said the outlook on gas is great for consumers and SUV sales, but not great for auto makers trying to meet CAFE standards. The economist said his firm forecasts 17.7 million U.S. light vehicle sales for 2016, before dropping to 17.1 million next year, 16.7 million in 2018 and 16.5 million in 2019, then bouncing back to 16.7 million in 2020. The used vehicle market is very similar, projecting 40.4 million units for 2018, up from 38.7 million in 2008.

    Beyond 2020, he said there's real potential for the U.S. to reach new heights—18.5 to 19 million units—with one caveat.

    “I think after 2020 there's huge potential in this market, if we don't regulate this potential demand away through CAFE and other regulations, of seeing 18.5 to 19 million units as these Millennials start to age,” Szakaly said. “As they start to earn more income and form families, they're going to come back to this market, and they will buy cars. But not if we make them cost six or seven thousand dollars more because every vehicle has to be a hybrid.”

    He took a closer look at the Millennial buyer and while a number of factors go into why they're delaying major purchases—getting married later and burdened with student loans—the real reason for the delay is that on average they're making less compared to other generations. He said the typical car buyer makes about $80,000 per year, while Millennials are still only making $32,000 per year on average.

    Only about 29 percent of Millennials make $100,000 per year, while 45.5 percent make more than $60,000 per year, according to Szakaly, and the average income for a Millennial car buyer is $49,900, significantly below the average.

    “They're young; this is to be expected,” he said. “They haven't had a lot of experience in the job market, and they also entered, in many cases, into one of the weakest job markets we've ever seen. Wage growth has been pretty much stagnate, so it's going to take some time for these people to earn the seniority in order to start buying these cars.”

    However, there are signs this is starting to change. Szakaly said the No. 1 reason for Millennials buying a new car is having kids as indicated by 52 percent of respondents to a survey he cited. No. 2 was improved content, which 22.3 percent of participants indicated.

    “We're looking at probably at least another five or maybe seven years before this generation really has an outsizing impact on this market,” he said.

    Steven Szakaly

    Future disruptions

    McAlinden identified a number of major disruptions the automotive industry faces in the near future, three of them focused on autonomous vehicles—auto makers partnering with new mobility markets, investment in the deployment of connected or automated vehicles and the Tesla autopilot situation.

    Automated vehicles have the potential to reshape many industries, but Szakaly said the issue of liability needs to be sorted out.

    He cited Rio Tinto, a mining company that has been running automated mining trucks since 2008. Szakaly said automation has increased productivity and safety, with a one-tenth accident rate compared to the non-automated ones. Furthermore, he added that the accidents that do occur are usually people running into them, not the automated truck running into something else.

    But the mining company has some advantages—a controlled space, central monitor and mandated service intervals. None of those ideal conditions are prevalent on the road, especially service intervals.

    “Consumers consistently misuse any product that is made,” Szakaly said. “They'll think of something ridiculous, that no engineer will have ever thought of. And no lawyer either. And they're going to misuse it; they're going to break it. That's a problem in this industry when we're talking about automated technology because there's a big question about who's going to be at fault in these situations. Who is actually going to be responsible?”

    Szakaly said consumers don't service their vehicles consistently and in an automated world where the technology is responsible for the vehicle performing, that's a major problem. He said by 50,000 miles, the willingness to perform regular service falls to less than 40 percent. And overall, only 31 percent of vehicles in the fleet are regularly serviced and maintained.

    “The failure of automated systems is going to be very different from say someone's transmission because they didn't change the fluid, or someone's engine because they didn't go in for an oil change,” Szakaly said. “That's a personal problem that affects one vehicle. Failures in automated systems will affect multiple vehicles and could possibly lead to fatalities. There is a 100 percent certainty that consumers will misuse it. There is a 100 percent certainty that if we don't have mandated service intervals, someone's system will not be maintained.”

    Currency conditions

    Robinet said currency is the main driver as to why vehicle manufacturers locate in other markets, in an effort to reduce risk by mitigating the impact of currency fluctuation.

    “There is some plateauing going on depending on where you are in the industry,” Robinet said. “It's really incumbent upon suppliers to really look out and say to themselves what's critical for me, how do I find my groove, maintain profitability and reduce risk in this kind of environment.”

    Mohatarem said a strong dollar is good for the economy. Creating high quality money has value globally, and people are willing to pay for that as long as we maintain the institutions that back it up, he said. All else equal, he estimates the U.S. would be running a trade deficit at 2 to 2.5 percent without that.

    “Not a huge concern,” Mohatarem said. “We're always talking about trade and the dollar in a negative way. The fact is a strong dollar is good for the U.S. It importantly reflects the faith the world has in our institutions, our judicial system, our treasury, our central bank. Just think about it: Without doing anything, people are willing to give us money at roughly 2 percent of our GDP because they want to hold our dollars and use our dollars. Our dollars facilitate global trade.”

    None of the economists seemed overly concerned with Brexit. Mohatarem branded it as more of a U.K. story than a European story. However, he said the bigger impact is what the decision will have on the pound, how it's weakened against the euro and the dollar in the short term.

    Overall, his outlook on the U.S. economy is very strong, especially when looking out to uncertain situations around the world.

    “There's not a whole lot of risk taking going on in the U.S. economy,” Mohatarem said. “The household balance sheet is very, very strong right now. There's some concern about lenders, but lending to autos has been so comfortable that there's probably more available supply than demand for credit. The Consumer Financial Protection Bureau is putting pressure on lenders to restrict credit in the auto sector. But I think it's so profitable—probably the most profitable activity for lenders right now—that I don't see that having a huge impact.”

    Related Articles
    Auto suppliers top $10 billion with first half merger activities
    Auto industry spending winds up in unlikely place
    Groups fight FHWA greenhouse gas reduction plan
    Auto suppliers hope for the best, prepare for the worst
    Auto purchasers won't feel spike in raw material prices
    Survey says suppliers value fuel economy standards
    Innovation fuels auto industry
    U.K. chemical makers meet Brexit minister
    Suppliers brace for industry downturn
    Consumer Reports: EPA fuel-economy labels more accurate
    Auto coalition urges U.S. to adapt regulations for autonomous vehicles
    U.K. new car market up 2.9 percent
    Letter
    to the
    Editor

    Rubber & Plastics News wants to hear from its readers. If you want to express your opinion on a story or issue, email your letter to Editor Bruce Meyer at [email protected].

    SIGN UP FOR NEWSLETTERS
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    Get our newsletters

    Staying current is easy with Rubber & Plastics News delivered straight to your inbox, free of charge.

    Subscribe Today

    Subscribe to Rubber & Plastics News to get the best coverage and leading insights in the industry.

    SUBSCRIBE
    Connect with Us
    • LinkedIn
    • Facebook
    • Twitter

    MISSION

    To serve companies in the global rubber product industry by delivering news, industry insights, opinions and technical information.

    web
    Contact Us

    2291 Riverfront Pkwy, Suite 1000
    Cuyahoga Falls,
    OH 44221

    Customer Service:
    877-320-1726

    Resources
    • About Us
    • Digital Edition
    • Contact the Staff
    • Advertise
    • Order Reprints
    • Privacy Policy
    • Privacy Request
    • Terms of Service
    • Careers
    • Ad Choices Ad Choices
    • Sitemap
    Partner Sites
    • Tire Business
    • European Rubber Journal
    • Plastics News
    • Plastics News China
    • Urethanes Technology
    • Automotive News
    • Crain Brands
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • ITEC
      • Automotive
      • Tire
      • Non-Tire
      • Suppliers
      • Silicone
      • Latex
      • Coronavirus
      • Executive Action
      • Government/Legal
      • Opinion
      • Technical Notebooks
      • International Elastomer Show
      • Women in Tire & Rubber
      • HEXPOL Sponsored Content
    • Blogs
      • Products
      • Wacky World of Rubber
    • Newsletters
      • Rubber in Automotive
      • Silicone News
      • Latex News
      • Sign Up for Newsletters
    • Multimedia
      • Videos
      • Photo Galleries
    • Directory
    • Resources
      • Classifieds & Mold Mart
      • Sponsored Content
      • White Papers
    • Data
    • Events
      • RPN Events
      • RPN Livestreams/Webinars
      • Industry Events
      • Past Events
      • ITEC Library
      • International Silicone Conference Library
    • Advertise
    • DIGITAL EDITION