A Look Ahead To 2019—for Commuters at least

 

car-3866120_1920Trying to predict the future of the automobile is like trying to predict the weather. There’s the farmer’s almanac method which examines the last century of trends and cycles, then mathematically predicts what’s most likely to happen. Then there’s the meteorological method which involves Doppler radar, satellite imagery, and computer models. In this method, well-educated experts analyze the data to produce a percentage chance of an outcome—usually, something like it will rain or not, odds are 50/50.

There’s a third method that involves Granny Clampett and a beetle she keeps in an old matchbox…but in all seriousness natural observation can’t be completely discounted. It’s maybe odd that the first two methods don’t involve stepping outside and looking up.

So let’s take a look at the automobile, it’s industry and environment in 2019 from all three viewpoints.

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The Market/Industry

The automotive version of the Farmer’s Almanac might be the Cox Automotive Dealer Sentiment Index. It says that the fourth quarter of 2018 was not as profitable as it could have been and the market may be heading south.

The meteorological approach would see a number of new tariffs for the market put there so that we might compete with China for manufacturing jobs. This includes all the pieces which make up a car, the engine, the tires, the transmission shafts and so on. But manufacturing jobs will be hit hard by automation in 2019.

Fewer imports mean less crude oil burnt to bring goods from China, but a bigger cut to fuel consumption is coming from electric vehicles. This is where we get some conflicting indicators. GM is closing plants because it gambled on hybrids that no one seems to want to buy. So fuel economy may not be the single biggest driving force in market decisions. And the current power grid and generation level can’t handle charging all those cars, so it’s not likely that electric cars (EVs) will quickly supplant traditional ICE Cars (internal combustion engine).

If EVs are truly more reliable and the cost of fuel, which has come down, is the big car consumer driver then we’re heading for a big oil surplus in three to five years, along with cheap used cars, and almost no new ICE Cars being purchased. This will mean a temporary boon for repair shops as the driving public buys cheap surplus used cars to exclusion of new cars (unless they’re EVs). For more on that theory see our post from 12/28/18.

The tariffs won’t hit for a couple months into 2018 and then we’ll get a better idea what the impact might be.

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Financing

The Almanac student would point to the fact that new cars price tags have gone up and up. Some of this could be that EV’s are in development phase more than really in the production phase. Companies like Tesla have released their luxury versions first because it’s better able to absorb the high cost of buying something so new to the market. Even as Tesla moves on to more consumer-friendly car models their price won’t fall until they get into their second and third rendition (where new the new model uses the old assembly). Also, more EV manufacturers will enter the market and need to go through the same cycle.

If we exclude EV’s entirely we still see a trend to more expensive new car prices as the amount of mandatory safety features increases every year. However, it’s likely that the big driver of cost in cars is that makers aren’t able to sell as many. The reduced demand should bring prices down, but not if automakers believe that the people opting to not own a car are a cheap car buying people.

In other words:

  • Generationals aren’t as interested in driving
  • Jobs are concentrated in population centers where parking is scarce, gas is expensive, and mass transit is an option,
  • While baby-boomers are staying in the job market longer, they’re finding other ways to get around.

With young and old not buying cars, that leaves only the more affluent of the smaller generations to market to and they’re not as afraid of a high price tag.

The car meteorologist would notice the number of creative financing options popping up. (Whoever heard of an 18-year house loan, right?) Well, if manufacturers think the answer to their woes is to sell fewer, but more expensive cars, then it’s likely we’ll see longer term car loans. Many experts are predicting that your FICA score will become more volatile as technology can now track your income and debt down to the minute. It puts the whole subprime loan process into a new light.

Assuming all the above is true we’re looking at a giant used car market coming, which could see lenders sending consumers to car inspection services, to verify the condition of their next purchase as early as June 2019.

One way dealerships and automakers might partner to respond to changing conditions are with leases and cashback services. The idea is to make cars more like cell phones where you buy the car but the trade in value follows the market better when you return it to the maker’s official dealership. Then you can turn it in toward the new model. One could imagine it coupled with levels of extended warranty so that after a year you can upgrade at a good trade-in price and the next buyer would get a special extended warranty based on mileage. This might sound like what already happens but it’s not. This plan would take some of the sting out of the new car depreciation but offer people more flexibility that they have with a lease.

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Type & Trend

The car meteorologist says there is a host of new EV and hybrid models coming out, including the Lexus UX HUV and the Jaguar’s i-Pace. There are also new manufactures entering the market. A startup called Rivian (https://www.engadget.com/2018/11/27/rivian-electric-truck-suv-r1s/) is going to enter the market in 2019.

The car almanac reader says it’s a bit too early to tell if EVs area fad or a revolution. Most of the time cost of operation is a major influence and power rates may not always be cheaper than gas and diesel. Many new technologies have false started a few years before they actually took off. The more expensive the item the slower it’s adopted.

As for dealerships, CarMax has become the number one used car dealership in the world based on volume. But their system isn’t perfect (you can’t get it inspected pre-purchase) and just because they have a lead doesn’t mean they won’t get competition. There’s no barrier to entry for their system. In fact, it’s likely that they’ll get at least one big competitor in 2019.

Certainly, the appeal of new models means new car dealerships will thrive, but what about long-term? It seems that optimism is declining in both new car sales and used car sales. The optimism for used car dealerships is down to about 57% from 60%, according to the Kelley Blue Book. It should mean that when new car dealerships are declining that used car dealerships pick up, but that doesn’t seem to be happening and it’s not clear why.

One thing is likely, 2019 will see hybrids start to fade as European clean diesel and longer range EVs start to take market share.

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Car Design Trends (Mid-engine Mainia!?!?)

The car meteorologist points to sudden interest in mid-engine design. Mid-engine cars aren’t new. In fact, it’s basically the first design for cars (see 1901 autocar). It’s common sense that placing the heavy engine closer to the back wheels increases torque and evenly distributes the weight. It’s become quite the rage in sports cars where performance is more important than a back seat. But Chevrolet is gambling on a mid-engine Corvette in 2020. (Note that cars stated as 2020 are sold in 2019. An advertising gimmick, but it confuses some people.)

A mid-engine just means it has an engine located centrally between the axles. Confusingly, there is also a rear-mid engine type car. It’s possible that automakers who embrace EVs will go to a low engine/battery compartment that sits entirely below the seats and between the wheel wells. This might enable them to build all their car lines on the same base frame and engine platform. Imagine a thick car-sized surfboard with wheels attached that you can just attach seats to and then add a body over.

The car almanac reader says that certainly, the SUV fashion will remain. At least Ford is banking on it by bringing back the Bronco. The last Bronco was manufactured in 1996 but in order to compete with jeep, the design has been rejuvenated. In many ways, it looks more like the Ford Ranger than the 1996 Ford Bronco.

 

afterfx-custom-jeep-2774671_1920In Conclusion

Is there a devastating storm brewing that will leave the American auto industry in turmoil or is it just shifting from ICE cars to EVs?

The car meteorologist would say that apart from giving cars a facelift and what appears at concept car shows is relatively unchanged from past shows.

The car almanac reader points out that new trends move slower with expensive items (like cars) and the current power grid won’t sustain an army of electric cars. Unless the government does another round of incentives it’s unlikely EV’s will grow their market share drastically in 2019.

So the net answer is the American Car Maker should be able to ride the storm if there is one, but no one really knows, except perhaps Granny Clampetts weather bug. The weather bug has rolled onto it’s back and started wiggling its legs, so 2019 will ease in deceptively slow, but big changes are coming in the spring.

PS if you thought we’d update you on autonomous driving cars…well, the weather there changes by the minute. Look for stretches of long desolate highway in the southern Midwest (Arizona/Texas) to be upgraded with paint and electronic location devises so that driverless semis can be tested. The shortage of drivers and brutally boring sections of road with relatively stable weather conditions make it a good place to implement automated driving. Market forces will power this so it will happen, but maybe not 2019.

But Granny’s weather bug remains convinced that we’re five or more years away from regular use of AVs. That’s a controversial opinion these days, but Granny stands by her bug.

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