EVs, the UAW and a return to 'normal': 3 insights from auto industry experts

Hold tight to your optimism.

Because while there is plenty of good news in store for the auto industry, the near-term transition to new mobility could start to get rocky.

During a special Rubber News livestream, Casey Selecman, AutoForecast Solutions' director of powertrain forecasts, and Automotive News reporter Michael Martinez examined emerging auto industry trends and impacts.

Here are just three of the key points from the discussion.

The full conversation is available on-demand. For free access, register at rubbernews.com/events.

Anyone waiting for auto production and sales to return to those pre-pandemic watermarks will be waiting for quite some time.

Because industry rebounds aren't what they used to be.

The post-COVID return to "normal" isn't at all like the rapid production and sales rises that followed significant downturns in the wake of the 9/11 terrorist attacks and the 2008 financial crisis.

"It's a much slower return … a much longer, wider return to market," Selecman said, noting what used to be a four-year down cycle followed by a four-year return isn't what we're seeing. "It could be four years down and 10 years (back) up. It could be a lot longer (to get) back to what used to be."

What it used to be was record-breaking.

Vehicle production in 2018 and 2019 appeared poised to reach the 18 million mark in North America, having surpassed the 17 million threshold five separate times.

Today? It's hovering in the low 16 million range, Selecman said.

And there are a lot of reasons for that—supply chains snarls, chip shortages and sky-rocketing vehicle pricing, among others. But auto makers also are making better cars.

Better cars that are driven far less.

"Everyone is talking about vehicles getting better, lasting longer and having better durability," Selecman said. "But we are starting to see now (that) people aren't driving in four or five years as much as they used to, maybe in 2018 or 2019. They're driving half as much in some cases. … So that is really stretching out how the vehicle market is going to behave."

Ultimately, the new vehicle purchase cycle is longer, which means we're riding out a lull.

"Maybe not this year, but five or six years in the future, that pent-up demand that we had from '20 and '21 is going to start to change that return to market in '29, '30 and '31," Selecman said. "So we are going to see not as many vehicles as we used to see in this market, and maybe around the world—except for China.

"It's definitely a new normal and a new way of looking at the market that we haven't seen in the forecasting world ever, really."

For the Detroit 3 and its supply base, the six-week United Auto Workers strike was significant.

And that was the purpose. The UAW, Martinez said, leveraged all of its resources—including social media—to help shape the narrative around the strike and hit auto makers where they were most vulnerable: high profitability production. When negotiations went south, the union took down a production plant. Nobody knew when or where the strike would expand.

"The way in which the UAW struck them was unique and new, and it kept everyone on their toes," said Martinez, who covers the Ford and labor beats for Automotive News. "Nobody knew what was happening."

In the end, that tactic worked.

UAW secured record contracts with each of the three auto makers.

"The union won a lot for its members," Martinez said. "Labor costs for the Detroit 3 will rise significantly. Whether their competitors see similar cost increases remains to be seen. … But costs are going up and they are going to have to find ways to off-set that."

Moreover, it's left auto makers skittish. Because the UAW proved that it is not afraid to damage its relationship with the auto companies should it disagree with the direction business is going. And that left a lasting impression.

"There was also a psychological impact from what happened late last year in terms of the relationship between the union and the auto makers," Martinez said. "It is a lot more divisive and confrontational now, and it is going to be moving forward.

"The union's president Sean Fain (essentially) said 'we are not going to play nice anymore. They are not our family; they are not our friends. They have been holding us back from reaching the wages we need to have, so we are going to stick it to them until we feel we get what we are owed.' And that is what we are going to see in the coming years here."

Less than six months removed from the strike and well into union's aim to organize at non-union auto makers, that's already playing out.

Shortly after Ford CEO Jim Farley publicly noted that the auto maker may have to reconsider it's North American footprint, the union threatened to take down production at the Kentucky Truck Plant where it was working to refine a local contract.

There's a sweet spot for the EV market share in North America. It's probably not 50 percent. It's definitely not 100 percent.

Maybe 30-ish?

Right now, the total EV market share is somewhere around 7 percent, and it is growing quickly. EV sales topped 1 million for 2023 in November.

Still, there are whole lot of consumers who, for a host of well-known reasons, just aren't ready—or simply can't afford—to transition to EVs.

"Customer are seeing what the vehicles offer, (and) the pricing is just out of control," Selecman said. "If you go back five years ago, the average new car payment was something like $450, $500 a month. Now, the average new car payment is over $780 a month.

"Customers are not getting into the market because they cannot afford to get into the market. … There are not a whole lot of customers saying, 'oh, thank god, the average car is $800 a month.' Let alone things like Escalades and Mercedes—things that were $800 a month that are now $1,600 a month."

So, the industry is adapting. Looking for that sweet spot or powertrain offerings. A task easier said than done, especially when you consider the cost and logistics of trying to manufacture a number of models with powertrains.

"It gets really hard when you get 30 or 40 percent electric vehicles to keep all of these powertrain plants functioning," Selecman said. "… It's going to be a really cool change in the next three or four years—all the outputs from the UAW, the EVs and how the market is going to settle on what's rational and what's valuable for the consumer, ultimately. We've got to wait and see what is going to happen in the next couple of years,

"It definitely looks like there is a known—and it's not said publicly—but there is more of a known limit on what EVs can do in this market. Hence the shift to: We have got to have more hybrids, we have to have more plug-in hybrids, we have got to have more other things. It's not just (EVs)."

Oh, and in the middle of all of that, auto makers have to find a way to control those vehicle costs. Because a majority of consumers need dependable, affordable vehicles.

"The new vehicle market is very, very tight and there is an underlying need for value to return to the market, to get customers out of used vehicles and back into new vehicles," Selecman said. "… If they want to keep growing the market and keep selling vehicles, there is going to have to be something, a new entry or value prop or something on the bottom end of the market to get customers in. Because there are not enough customers for $100,000 cars out there.

"There just isn't."