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Changes ahead for auto industry provide opportunity for region

The Future Is Cloudy and Bright 

By Sandy K. Baruah 

January is always an exciting time in the Detroit region. The promise of a new year, and of course, the arrival of the North American International Auto Show, one of the premier global events on the automotive calendar and an opportunity to not only showcase the world-leading mobility assets of our region, but also the incredible and real urban renaissance of the city of Detroit.

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2017, however, brings an unprecedented number of questions that could potentially impact our mobility industry.

  • Have we seen peak demand for vehicles?
  • How will the trend towards longer vehicle loan terms impact the market?
  • Will we see spiraling incentives if demand weakens?
  • Will fuel prices remain low and the demand for more pro table SUVs and CUVs continue unabated?
  • How will the Trump Administration’s pro-business, limited-regulation and potentially anti-trade policies impact the industry?
  • Will the supply chain be impacted by possible changes to the North American Free Trade Agreement?
  • And, of course, how will the continuing transformation of mobility as a product to mobility as a service – and the emergence of non-traditional players – impact our industry?

While nobody really knows for sure what the answer to these questions are, there seem to be some key principals that bode well for Michigan’s most important industry.

Michigan-based mobility companies, both at the original equipment and supplier levels, have not forgotten the hard lessons of the Great Recession. This is evident in their cautious deployment of capital and far more restrained use of debt. Break-even points have been lowered substantially and there is a far greater focus on profitability as opposed to market share. OEMs have been far from sentimental in axing unprofitable legacy nameplates and brands. Suppliers and OEMs alike have resisted major capital investments in production facilities for fear of having underutilized capacity even though they have struggled to meet historic levels of demand.

While no one saw the fuel price spike of 2007 coming, with ample yet dormant shale reserves in the United States, and a strongly pro-energy president coming into office, it seems unlikely that America will experience some kind of fuel crisis or price spike. This is good for consumers, good for the economy, and therefore, good for the automotive industry, which stand ready to meet the demand for high-riding, flexible yet fuel-efficient crossovers and utilities.

On the cautionary side, however, remains concerns over ever-lengthening loan terms. Also, the growing use of incentives is troubling several analysts. Fall 2016 vehicle sales were trending below 2015’s record levels, only to see an exceptionally strong November that was driven by a surprising growth in incentives.

But perhaps the best news of all for the immediate and long-term future is the posture of Michigan’s mobility companies regarding product. As recently as a decade ago criticism that U.S.-based companies were not always producing world-beating products was not far off the mark. But today, these companies have gone from “zero to hero” in record time. Just look at any automotive “best” list and you will see that American brands, and products produced in America, are earning more than their fair share of accolades.

Our Michigan-based companies have made this  region the most active and concentrated place for next-generation mobility research, testing and deployment. No place on the planet can compare. We have the advantage going into the future. Our friends in Silicon Valley have recognized this and have started to establish a presence in Michigan, just as our companies have done the same in the Valley.

It is certainly an exciting time in Michigan and for the industry we love. Michigan’s challenge is unique. We have to take the lead in creating world-beating products today and tomorrow, while preparing for the most revolutionary change in the industry since its creation over a century ago. Fundamental change is in the air, including a very different president. It is certainly a great time to be associated with Michigan and the automotive industry – and I am equally certain that all of us associated with the industry will indeed earn our paychecks.

Sandy K. Baruah is the president and CEO of the Detroit Regional Chamber.