These Key Trends Will Rock the Auto Industry in 2017
President Trump, autonomous vehicles and digital retailing will shake up the automotive industry in 2017, affecting industry giants such as Ford, General Motors, and Toyota.
Let’s look at each of the trends that could disrupt the industry this year.
1. President Trump
If the Trump administration slaps tariffs on vehicles manufactured outside the U.S., it could have a significant effect on consumers, because it would increase the costs of imports and U.S.-made cars that use imported parts.
Trump has slammed auto manufacturers for assembling vehicles in other countries and has threatened to hit them with steep tariffs. For example, early in January, he aimed the following tweet at General Motors:
During the presidential campaign, Trump said he wouldn’t allow Ford to build a planned $1.6 billion factory in Mexico, this Reuters article notes.
Early in January, Ford announced it had scrapped plans for that facility and said it would add 700 jobs in Michigan, although it’s not clear exactly how much of Ford’s motivation came from Trump’s criticism.
Ford CEO Mark Fields characterized the decision as a “vote of confidence” in Trump but said Ford would have canceled the Mexican factory even if Trump hadn’t been elected because of declining demand for the small cars the facility would have made, Reuters said.
One of Trump’s most notable OEM targets is German manufacturer BMW. In an interview with German newspaper Bild shortly before the inauguration, Trump said, “I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 percent tax, then you can forget that.”
Prices of cars that are considered made in the U.S.A. could also rise, because many such cars have parts made in Mexico. Quartz recently reported:
“While Mexico’s passenger car exports to the US rank third, behind Canada and Japan, the country is the top foreign supplier of car parts to the United States, with shipments worth $51.6 billion in the first 11 months of last year, according to the US Census Bureau.”
All of this appears to spell uncertainty for both carmakers and consumers going forward and could affect investment choices that OEM’s make.
2. Autonomous Vehicles
Technology companies are aggressively working on autonomous vehicles. A CB Insights report last August identified “33 corporate groups involved in the development of advanced driver assistance systems and self-driving vehicles.”
They included Baidu, Intel and Microsoft. Alphabet’s Google was early on the autonomous vehicle wagon, and got so far along in its project that it spun it off into a separate entity called Waymo (which is still part of the Alphabet group of companies).
Major automakers are getting involved. In December, Honda Motor HMC said it was talking to Waymo about a deal that would allow Honda to use the self-driving technology in some of its cars, Bloomberg reported. And GM has been testing autonomous vehicles in Arizona, according to TechCrunch.
Ride-hailing company Uber has been working on autonomous vehicles, too. It recently moved its test vehicles to Arizona after the California state government canceled registration of the vehicles Uber had been testing in San Francisco, TechCrunch reported. Uber has been aggressive in making acquisitions related to autonomous cars, including the $686 million acquisition of self-driving startup Otto.
Widespread use of the technology will depend in part on how comfortable the National Transportation Safety Board and state legislatures are with the safety of autonomous cars.
One thing’s for sure, however: Carmakers who ignore this developing technology, do so at their peril.
3. E-Commerce and Online Marketplaces
Last year was a banner year for automotive e-commerce and marketplace companies such as Carvana and Vroom.
Vroom, which sells primarily used cars with low mileage, has said that it expected to bring in more than $1 billion in sales in 2016. The online car seller expanded its business in December 2015 by purchasing Texas Direct Auto, which was the top retailer on eBay Motors.
Phoenix-based Carvana is a company that sells used cars only online. It will deliver the cars to customers nationwide, or customers can pick up their cars at enormous “vending machines.”
The recent announcement that auto-lending giant Ally Financial would finance up to $600 million in retail contracts over 12 months shows that Carvana has entered the mainstream.
Companies like these show that more and more consumers are willing to shop for cars online and reinforces digital retailing.
Of course, Vroom and Carvana are focused on the used-car market, but bricks-and-mortar dealers selling new vehicles from major brands are expanding their online presence, too.
Innovative companies like TrueCar are also assisting dealerships in interfacing with consumers’ online with their new Chase Auto Direct partnership. This allows for a consumer to apply for financing through Chase online and seamlessly receive a haggle-free certified price from a TrueCar dealer so when the consumer arrives at the showroom all they need to do is sign and drive.
Meanwhile, dealership networks such as AutoNation, the nation’s largest new-car retailer, are participating in a pilot program run by Walmart and online platform CarSaver that will allow consumers to shop for and finance a vehicle online or at a touch-screen kiosk. The program is scheduled to launch April 1 at some Walmart Supercenters in Houston, Dallas, Phoenix and Oklahoma City.
How Are Automakers Reacting?
The traditional carmakers are addressing some of these developments by making major investments and acquisitions outside their traditional business units.
For example, General Motors has acquired self-driving software company Cruise Automation to quicken deployment of its self-driving car technology, launched car-sharing company Maven, and invested $500 million into ride-hailing company Lyft.
Ford bought Chariot, which operates shuttle vans in the San Francisco Bay Area that follow crowd-sourced routes.
Most large carmakers have started to build a presence in the San Francisco Bay area. BMW’s venture capital arm, BMW i-Ventures, is moving to Silicon Valley from New York and quintupling the size of its fund. And Ford has a Palo Alto, Calif.-based research and innovation center.
It’s safe to say that the large carmakers will be making more high-tech acquisitions and investments this year.