Nov 05, 2018
The automotive industry is a driving force in Michigan’s economy. While sales remain strong, there was a slight decline in 2017, compared to 2016. Total light vehicle sales in the United States were 17.25 million last year, a decline from 17.55 million in 2016.
The decline is fueled by plunging sales of small cars and sedans. Sales of mid-size and small cars are down 13%-15% in 2018. Meanwhile, sales of SUVs and crossover vehicles are booming, increasing by 14.8 percent.
Ford announced that by 2020, 90% of its portfolio in North America will be trucks, utilities, or cross-over vehicles. Citing a reduction in demand and profitability, Ford is not investing in sedans or small cars.
“Whenever there is a shift in the automotive industry, whether positive or negative, we know that Michigan will be impacted,” explains Rob Luce, Executive Director of the Detroit Region Aerotropolis Development Corporation. “In this case, Michigan is well-positioned to capitalize on the trend toward larger trucks and SUVs.”
Michigan is a leader in automobile production in the United States. In 2017, Ford, General Motors and Fiat Chrysler Automobiles assembled almost 2.1 million vehicles in Michigan. All three of the top-selling vehicles in the United States – the Ford F-Series, Chevy Silverado and Dodge RAM pickup trucks – are produced in Michigan. The high volume of trucks and SUVs produced in our state gives Michigan an advantage in the market, compared with other states producing a high volume of small cars.
Low Fuel Prices Impact Sales Trends
In the past, sales of small and mid-sized cars have been heavily influenced by fuel prices. When gasoline prices soared to over $3.50 per gallon back in 2008, sales of small cars spiked. And when gas prices decreased, dealers were left with an overstock of small and mid-sized cars as consumers turned in their small cars in favor of larger trucks and SUVs.
Gas prices have remained relatively stable for the past few years, averaging $2.76 per gallon in November 2018, and there is no indication that will change anytime soon. Experts are predicting crude oil prices will remain stable, with seasonal variation as to be expected. According to the International Monetary Fund (IMF), the average price per barrel of crude oil will increase only slightly from $48.60 per barrel in 2018 to $54.80 per barrel in 2022.
Even if fuel prices rise, auto manufacturers are starting to close the gap by improving fuel economy of small SUVs and crossovers.
The Emergence of Electric Vehicles
In the future, the price of gasoline will have less of an impact on auto sales as electric vehicles will dominate the market. By 2040, it is estimated that 90 percent of all passenger vehicles in the United States, Canada, and Europe could be electric, according to some estimates. The adoption of electric vehicles on such a large scale could reduce oil use by 21 million barrels per day and cut CO2 emissions in the United States by 60 percent.
Even if the adoption of electric vehicles occurs at a slower rate than predicted, the eventual outcome is the same – more electric vehicles and a reduced dependence on oil.
Autonomous Vehicles and the Sharing Economy
As we transition from an automotive industry to a mobility industry, we will continue to see the expansion of self-driving technology. Self-driving vehicles are already legal on the roads in some states, and companies such as Tesla and Uber are experimenting with self-driving taxi services.
Experts also predict movement toward a sharing economy for cars. Many consumers will no longer own a vehicle. Instead, they will participate in a shared economy, calling on a vehicle when needed. Car sharing programs are already popping up across Europe and it is just a matter of time before they make their way here to the United States.
Both of these trends will require larger vehicles, such as SUVs, that can hold multiple passengers. “If your primary intention is mobility, and that trip includes one or two other people, then larger vehicles are going to be better suited for that purpose,” says Luce.
Going Bigger is a Global Trend
Many people think the United States is the only nation obsessed with large trucks and SUVs, but recent data shows the preference toward SUVs is a global trend. Auto analysts predict the SUV market share will hit 35% worldwide and 45% in the United States within four years. China is a major factor in the global SUV market, with SUVs expected to exceed 40% of the total market in China by 2021.
The small car market isn’t dead, but it’s not what it once was and might never be again. “There will always be a modest market for small cars,” explains Luce. “But in the long run we will continue to see trucks and SUVs dominate the market and that trend is good for automakers’ profitability and by extension, Michigan’s economy.”
