Chaos in Autoland: Does Anyone Have a Strategy for Success?

In the last month, Ford and Nissan announced major cost-cutting strategies following BMW’s and GM’s announcements just a few months ago, and Daimler reported a massive loss for the quarter that signaled financial stress eroding even the predictability of the German luxury brands. Although some issues are unique to each automaker, such as mounting fines and costs associated with the diesel scandal and the continuing impacts of the Takata airbag recall, the bigger picture is troubling for every automaker.

There is little doubt that slowing global demand, trade policies, and uncertainty over emissions standards in the U.S. will negatively impact automakers’ profits; however, the industry has locked itself into a spiral that will potentially have a greater impact on profits. Technology that makes us safer, meets current and future emissions standards, and provides some level of autonomous driving, as well as the connectivity that transforms the car into an entertainment hub while monitoring our every movement, comes at a stiff price. New cars are increasingly unaffordable as the average vehicle retail price exceeds $35,000.

Pursuing the huge profit generated on heavily-equipped pickup trucks while eliminating affordable or low margin models is risky, especially as we see more competition and saturation in the light truck sector. Some drivers still want sedans as evidenced by their stronger wholesale prices relative to many categories of light trucks where the used supply demand ratio points to faster depreciation. At the same time, the auto industry has determined that our future is hitching a ride in an autonomous electric vehicle even though investments or experiments have generally demonstrated how little they know about consumer behavior.

There is painfully little evidence of a huge electric vehicle market anywhere except where governments mandate them (China) or incentivize their purchase (e.g., Norway, Netherlands, Hong Kong, etc.). While battery costs are decreasing, their construction will always be dependent on scarce raw materials with fluctuating prices. Additionally, the positive environmental impact of full electric vehicles depends upon the adoption of renewable energy and cost-effective options for recycling batteries.

Auto companies raced into the concept of ride-sharing only to discover that owning a fleet of cars is a money-losing proposition. Companies own the depreciation and the headaches that come with managing a fleet, including making certain cars are returned on time to the designated location while being able to assess damage caused by hauling a kayak or skies on the roof (true story).

As far as subscriptions are concerned, automakers seem surprised that the few users they have don’t change their cars the way I change my shoes or handbag! Typically, car buyers seek out a model that optimizes their needs. Few owners drive the majority of their miles with seven passengers in their giant SUVs, but they bought them for the times that they need that capacity. If someone needs a van or pickup truck for the weekend, truck rental companies have fulfilled that need for decades.

The specter of robo-taxi fleets is a long way away due to the limitations of technology versus our brains’ ability to navigate all situations we encounter on the road, be it fog, a left turn, or a double-parked car. So, the possibility of fleets of autonomous electric vehicles eliminating personal vehicle ownership, or even making a dent in it in the foreseeable future, is highly unlikely.

Let’s hope that all of the cost cutting taking place inside auto companies results in more affordable cars. Protecting their share of the business should be a priority, not throwing cash into mobility investments. The U.S. auto industry’s history of diversification is terrible — and little of it remains within the companies having been shut down, reduced in scope, sold, or spun out. The list is growing and includes investments in financial and mortgage institutions like GMAC; salvage companies; EDS; Hughes; car rental companies; luxury and near luxury car brands; car dealerships; Chariot; Book; and much more. In the process, the once Big Three became the Detroit Three.

Maryann Keller is principal of Maryann Keller & Associates, an automotive research and consulting firm.