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A Recovering Industry

Paul Eisenstein sheds light on the auto industry’s resurgence By Marcus Amick Paul Eisenstein, publisher of TheDetroitBureau.com, talks about major shifts in the global industry.

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By Marcus Amick

 

What factors have contributed most to the industry’s rebound from a consumer perspective?

One of the reasons we saw such a strong industry is because we saw such a weak industry. The market collapsed to a level that we haven’t seen since the Great Depression and the fact is, we got so much pinned up demand right now that it is no surprise that consumers are racing back even though the economy is far from solid. If you look at October when we had the (government) shutdown, many people were expecting that we might see a 10 percent decline that month in auto sales. We had a very frustrating September, but October brought another increase, certainly more than anybody would have expected considering what happened in Washington, D.C., and that the economy could again collapse if the U.S. went into debt default. And the critical reason seems to be the pure pinned up demand. We continue to see a loosening of credit. The feds continue to hold off on tightening interest rates. All of those are factors.

Clearly, technology is the dominant driving factor in the industry. What consumer trends do you see impacting the industry in the future?

Technology is going to change everything about the car, and it already is in the bust of doing so. In-car infotainment will become even bigger. If you look at traffic fatality rates, they went up a little bit last year, but they appear to be coming down sharply this year. We used to see as many as 50,000 people killed on the highway. It’s now down into the thirty thousand and will continue to drop. Part of it is from a crackdown on drunk drivers and basic improvements in the design of the vehicles. They are now better capable of designing vehicles to properly absorb energy during a crash, but increasingly that reduction in death rate is a result of new technologies. We’ve moved from passive safety features like smart air bags that can soften the blow of a crash to active technologies that are now being used to avoid a crash, and that will lead us to the next level, which will be the fully autonomous car.

Nissan plans to put an autonomous vehicle into production by 2020 and other makers are saying they won’t be far behind. Will it work? Will people be comfortable buying cars that they turn over the driving to? That remains to be seen, but there is little doubt that even before we get to fully autonomous vehicles we’ll see tomorrow’s car have more and more technology that can reduce the load on the driver. And there’s probably the likelihood that, even in a bad situation, you will probably be able to avoid a crash or get out of a crash with less damage to the vehicle and far fewer injuries or deaths.

How do you see the competition for the autonomous vehicle impacting the landscape of the auto industry as we know it?

It remains to be seen how big and how fast of an impact autonomous technology will have on the industry. The reality is I expect to see few autonomous vehicles on the road, even if we see the first hit the street in 2020. They are going to be in very small numbers for many years. For a good time to come, people are still going to be driving with hands on the wheel, but every year we are seeing more and more smart technology that will assist the driver, whether it be parking, maintaining a safe distance with active cruise control or even more aggressive technology that can bring a car to a screeching halt if a pedestrian walks in front of it.

What other future trends could affect auto sales from consumer perspective?

We are seeing a lot of shift in who is buying cars and whether they are buying cars at all. One study by CMW Marketing suggests that almost one in 10 households now are carless. Will we see more and more people give up cars? Well, there’s a lot of indication that may be the case. If you look at young potential buyers, in many cases they are not even getting their license, never mind buying used or new. They’re postponing buying like we’ve never seen before. There are many hoping that, as they start families, they’ll start going back to more normal patterns of buying and they will get into vehicles, but that could mean that many people will wait five or even 10 years longer to buy a vehicle than they have in past generations.

One of the things that could lead to significant shifts in who buys what and when is the car-sharing phenomena. The fact that you now have major players such as Hertz, Enterprise and Avis getting into car sharing says that this is not a fad. This is a trend, and so we may see some major shifts in terms of whether or not young people buy cars or whether they will findalternatives not in just mass transit. If they do need cars, they may not have to necessarily buy one or go to the traditional rental counter, but they may think they can do it a different way entirely. There is no doubt that we will continue to see large shifts in trends in what people are buying.

What impact will future fuel standards have on the industry?

The carmakers don’t seem to be having a problem reaching the 2016 CAFE standards. The real challenge is going to be the 2025 goals (54.5 mpg fleet average), which will really be about 40 mpg on the window sticker. The question is going to be can the industry get there without going electric, whether it’s a mild hybrid or more dramatic technology like the Tesla or the Ford Focus. And the problem is that today’s battery technology is expensive, has limited range and takes a long time to charge. I consider myself a skeptical proponent of battery technology. Right now, I don’t think it has mass appeal, and it’s being driven by regulation more than consumer demand, but if you start seeing more of a 200 and 300 mile range on a single charge it changes the game. If you start seeing huge improvements in terms of power density and the price drops, that could be a game-changer. The interesting thing also is the industry has become phenomenally good at squeezing more miles per gallon out of the traditional gasoline engines, and I don’t think it’s over. I think you’ll continue to see manufacturers surprise us.

Marcus Amick is a metro Detroit freelance writer.