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Small cars will lead the demand

Published January 2, 2010


Eventually, historians will write that the past decade was one of the most tumultuous and significant eras in the auto industry.

The terrorist attacks of Sept. 11, 2001; the roller-coaster of fuel prices; the public's growing environmental and road safety awareness; the rise of the Chinese automakers; the fall of the Detroit Big Three.

It all culminated in the final year of the last decade with one-time U.S. giants General Motors and Chrysler filing for bankruptcy protection and needing tens of millions of taxpayer dollars just to survive.

But what about the future? What will a new year bring to the auto industry?

And what about for the next decade?

In the short term, 2010 should be relatively blue skies and sunshine compared to 2009.

After a year that saw the long-overdue contraction of slow-selling products and entire brands (so long to Pontiac, Saturn and Saab) the auto industry should be able to get down to the business of selling cars in 2010.

For those still with jobs, value and stability will continue to be king.

Bang-for-the-buck brands like Hyundai, Kia and Suzuki should continue their 2009 gains.

And it looks like Toyota has stopped playing the volume game with a renewed focus on quality and interesting products, like its forthcoming Scion brand, potentially highlighted by the Smart ForTwo-like iQ city car.

Even if gas prices don't get up to $1.50 per litre, fans of small, fun-to-drive cars and electric vehicles should be happy in 2010.

Ford will lead the way with its Fiesta subcompact and a family of Focus-based compacts.

Mazda will have its own version of the Fiesta, dubbed the 2.

Fiat-Chrysler is planning to debut its first new joint offering – the 500 city car – next year. While at next week's Detroit auto show, a Chrysler-badged Lancia Delta is a sign of things to come.

GM's Chevrolet will have its new Korean-designed Spark city car, Aveo subcompact and compact Cruze sedan.

This year will also see the transition of the electric vehicle from the lab to the showroom. One of the biggest stories you'll be reading about in 2010 will be the "electrification of the automobile."

Led (from a marketing standpoint, anyway) by the introduction of Chevrolet's long-awaited Volt plug-in EV and the Nissan Leaf, the first modern production electric vehicles will start going on sale in the next 12 months.

Looking forward to this year is one thing. But what will the auto industry look like in 2020?

Three things – the environment, the economy and shifting demographics – will have a major impact on what we'll drive. By 2020, cars will be drastically more fuel efficient, if they emit any fossil fuels at all.

In the next few years, both in Europe and in North America, we will witness the implementation of some of the most stringent fuel-economy and tailpipe-emissions regulations ever.

In the U.S., new average fleet regulations build from the current 27.3 mpg (8.6 L/100 km) 2011 standard and go up 5 per cent each year until 2016, topping out at 35.5 mpg (6.6 L/100 km) – or what the best gas-only subcompacts can achieve today.

In Europe, where cars are already on average more fuel efficient than here, the focus will be on tailpipe emissions.

By 2012, 65 per cent of new cars must only emit 130 grams per kilometre. And this will rise to 100 per cent from 2015.

To hit these targets, automakers will have to sell more small cars with smaller gas engines, diesels, gas-electric hybrids and pure electric vehicles. And all of these new technologies won't be free.

Some in the industry suggest this could add $6,000 to $14,000 to the price of a new vehicle.

Of course, it doesn't matter how environmentally friendly a car will be in 2020 if you can't afford to buy one.

The second biggest change in the next decade will be the continuing shift toward new markets outside of North America and Europe (which have driven what types of automobiles we drive since the birth of the car in Germany in the late 1800s) and the aggregation of the industry.

To offset the investment required to meet these new regulations, automakers will have to sell more cars in markets like Brazil, Russia, India and China that have less stringent environmental rules (i.e. more profits).

For example, China is well on its way to becoming the No. 1 market for General Motors.

While its U.S. sales dropped by more than one-third to just over 1.5 million cars and trucks in the first nine months of last year, General Motors sold almost 1.3 million vehicles in China, up 55.6 per cent from a year earlier, as reported by Forbes.

The impact on North American buyers is already being felt at the product level.

New-car buyers here are no longer shaping car design.

Buicks, the quintessential "American luxury" brand, are being designed in GM's Asian studios with the tastes of Chinese car buyers first and foremost.

To amortize these new investments, along the way, small volume automakers won't survive.

"You need at least 5.5 million to 6 million cars a year to have a chance of making money," Fiat-Chrysler CEO Sergio Marchionne told Automotive News during his attempts to buy GM's Opel.

Volkswagen Group's recent purchase of Porsche and shares in Suzuki point to a trend of bigger fish gobbling up the minnows.

Finally, new-car customers in 2020 will be very different than those today, both in age and in lifestyle.

The average American new-car buyer in 2009 was 48 years old and lived in the suburbs. But by the end of the new decade that buyer will be younger and live in the city.

Already, 70 per cent of North Americans live in congested cities. And by 2020, that percentage is projected to be higher.

In North America, aging baby boomers, who have driven new-car sales since the 1960s, will be retiring with less income and less reason to drive every day.

The next-largest-buying demographic – the "millennials," who are those born between 1980 and 1995 – will want to drive a different type of car than the ones they are currently borrowing from their parents.

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