Sci-fi becomes reality, tariffs overshadow sales and more in store for automakers in 2019
- Leaders of Renault, Nissan and Mitsubishi have been holding a series of urgent meetings in a bid to reshape power within their alliance.
- The final month of the year was expected to see another modest increase in consumer demand.
- The Federal Reserve ended the year with yet another rate hike while signaling it won't be the last.
Barring a last-minute reprieve, Carlos Ghosn will be spending the holidays confined to a small cell in the Tokyo Detention Centre, the once high-flying head of the Renault-Nissan-Mitsubishi Alliance facing a series of financial corruption charges.
While it's hard to imagine many having a rougher end to the year than the Brazilian-born Ghosn, there are more than a few lumps of coal in the stockings for those leading an auto industry facing a potentially rough 2019. Tariffs, rising interest rates, a plunging stock market, layoffs and plant closings are just some of the headaches the industry is facing as 2018 comes to an end.
Not that it's all bad news. Auto sales have actually shown a bit more strength than expected in recent months, raising hopes that a nearly decade-long recovery still has some legs. For the most part, industry earnings also have held strong — even Tesla delivered some surprising black ink during the third quarter. And 2019 could see the industry accelerate the shift into new areas of mobility, including autonomous and electrified vehicles.
Here's a look at how some of the big stories of 2018 could evolve in the new year.
End of an Alliance?
Nearly two decades after it was formed, the Renault-Nissan-Mitsubishi Alliance has grown into one of the world's largest automotive groups, challenging both Volkswagen and Toyota for the global sales crown. But the future of the alliance is increasingly uncertain following the Nov. 19 arrest of 64-year-old Ghosn.
The man credited with helping save a near-bankrupt Nissan back in 1999 and then putting together the three-company group faces charges of serious financial misdeeds that could see him locked away for a decade or more. A Tokyo court appeared ready to release Ghosn last week, but prosecutors filed new charges that could see him remain in custody through at least the first week of the new year.
Leaders of the three companies, meanwhile, have been holding a series of urgent meetings in a bid to reshape power within the alliance and hold it together. But with growing mistrust, that could prove increasingly difficult, especially as some on the French side of the group question whether Ghosn's arrest was really just part of the power struggle.
Car sales strong, for now
Coming out of the Great Recession few anticipated the sales surge that saw U.S. demand for new vehicles top 17 million for the first time ever. But just how long could it last? The inevitable slide seemed ready to begin in 2017 when sales dipped to 17.2 million. It was a modest drop, to be sure, but one expected to accelerate in 2018. Consumers, however, weren't ready to stop shopping.
"We've been saying all year that 2018 would be a down note for the auto industry, but it ended up defying the odds," said Jeremy Acevedo, Edmunds' manager of industry analysis. "Automakers are really pulling out all the stops in December to close the year on a high note, and car shoppers seem to be in a buying mood."
Barring any last-minute surprises, the final month of the year was expected to see another modest increase in demand, year over year. That would likely bring total sales for 2018 to around 17.3 million, making it the second-best year in industry history. But there are plenty of reasons to worry about the new year.
Federal shutdown
At the earliest, the partial shutdown of the federal government now appears likely to stretch out and could push into early 2019. If the past is prologue, an extended shutdown could sap the economy of some much-needed strength.
Complicating matters, the Federal Reserve ended the year with yet another rate hike while signaling it won't be the last.
Edmunds' Acevedo sees that as just one reason "to approach 2019 with caution," noting that low interest rates helped pull the auto industry out of its seeming death spiral at the beginning of the decade and built momentum ever since.
President Donald Trump has billed himself as a "tariff man." He began his campaign for the White House in earnest by, among other things, threatening to impose new duties on imported cars and car parts and even warned he would rid Manhattan of European luxury cars.
Tariffs
The former businessman proved he was serious earlier this year when he initiated restrictions on imported aluminum and steel, following that with billions in new tariffs on Chinese-made goods. Both those moves have had serious repercussions in the auto industry. Higher metal costs alone are estimated to shave $1 billion off the bottom lines of both General Motors and Ford. Meanwhile, U.S.-based plants shipping vehicles to China saw the door slam shut.
That was a major headache for Volvo, among others, as half the output of the Swedish automaker's new plant in Charleston, South Carolina, is slated for export. "We … thought Charleston could build cars for China," CEO Håkan Samuelsson told USA Today. "That will not work."
Both countries have called a temporary truce. China is reducing tariffs on U.S.-made vehicles — for now. But the firing could resume early in 2019. Worse, at least for the auto industry, the president continues to call for new tariffs on cars and car parts imported from the rest of the world. Toyota has estimated that it could add $1,600 to the price of a Camry sedan assembled in Kentucky.
Earnings strong, investors unimpressed
With only a few exceptions — notably Ford Motor Co. — the auto industry delivered surprisingly good earnings during the third quarter. GM's earnings were unexpectedly strong, driven by truck sales, and Tesla completely blew analysts' projections out of the water by coming up with only its third quarterly profit since it went public in 2010.
But you'd hardly know by looking at the stock prices for most major automakers. With the exception of Tesla, which has a history of defying gravity — albeit with significant volatility — auto stocks were already weak even before the December crash of the Dow. GM's shares are down by almost 17 percent so far this year, Ford's shares have lost more than 37 percent, and Fiat Chrysler is down by almost 19 percent.
There are a number of reasons, Zacks investment research says, "auto stocks underperformed the broader market" and could continue to do so, including threats of an expanded trade war.
One of the things analysts will be watching for is how automakers fare on the bottom line if — or, really, when — car sales really do start to tumble. Coming out of the Great Recession, industry leaders insisted they were taking steps to remain profitable at recession sales levels. We could find out if they're right.
Layoffs
General Motors sent shock waves through the country when it announced it planned to shutter five plants — including three assembly lines — and cut 15 percent of its North American workforce, eliminating over 14,000 jobs.
"I am very disappointed with General Motors and their CEO, Mary Barra," Trump tweeted after the cuts were announced on Nov. 26.
But while GM says the cuts will be a subject during contract talks with the United Auto Workers Union in mid-2019, it insists it plans to follow through with the plant closings in order to keep capacity in line with demand. Other manufacturers are expected to make changes to adjust to the tariffs and falling consumer demand, whether through temporary or permanent closings or by reshaping their product portfolios.
Death of the sedan
The key reason for GM's decision to close three assembly plants is the sharp slide in passenger car sales. Sedans and coupes accounted for over 50 percent of the U.S. new vehicle market in 2008. That's now down to barely 30 percent as sales of SUVs, cross-over vehicles and pickups now account for more than two-thirds of the market, according to industry data.
There are plenty of reasons why the shift is occurring and spreading rapidly to other markets, from Berlin to Beijing. Today's light trucks are more fuel-efficient, offer more car-like rides, are more flexible and have the higher seating position many drivers prefer.
How long the trend can continue is uncertain, but Ford earlier this year announced it would drop all sedans and coupes but for its Mustang. GM will drop six sedans next year, and Fiat Chrysler has only three North American-made passenger car lines left. But not everyone is ready to follow their lead. "At 4 million units, the passenger car market is bigger than the market in most countries," Toyota EVP Bob Carter said during a speech in Detroit this month. "Cars are (still) very important."
Fill 'er up!
Predict where gas prices will go at your own peril. There were many who, not all that many years ago, expected Americans would be paying $4, $5, even $6 a gallon by now. But, if you're fueling up for the annual holiday trip you just might find yourself paying less than $2, according to fuel price tracking service GasBuddy.com.
"Given the overall concern that the latest (Federal Reserve interest rate) move will slow down economic momentum, traders are taking a dim view of petroleum pricing in general," wrote Dan McTeague, one of the site's senior petroleum analysts, adding that "the grim news for producers is music to the ears of drivers who continue to save at the pumps."
There is "no doubt cheaper gas prices are fueling (the) decision to hit the road" by 102 million Americans this holiday season, said Jeanette Casselano, AAA spokeswoman. But as any seasoned motorist knows, fuel prices are extremely volatile and could yet surge in 2019 for a variety of reasons, including renewed strength in the economy or a cutback in production by OPEC.
Plug me in
Volkswagen recently announced it will spend about $50 billion on batteries by the middle of the coming decade. All told, industry analysts expect automakers to invest upwards of $200 billion to electrify their lineups over the next 10 years. But there's a big problem: consumers have been wary to charge into the battery-car market. In 2017, hybrids, plug-ins and pure battery-electric vehicles generated barely 4 percent of total U.S. new vehicle sales combined.
That just might be set for a big change, however. Tesla is now rolling out more than 6,000 of its Model 3 sedans each week and still struggling to meet demand. Meanwhile, automakers ranging from Audi to Volvo plan to start rolling out new long-range BEVs, many of them at more affordable prices. And, with fast chargers popping up across the country, barriers to entry are falling, proponents insist.
That said, here's another way Washington could play Grinch. Tesla and GM will soon reach the sales threshold where their buyers no longer qualify for up to $7,500 in incentives on EVs. And, rather than extending those tax credits, the White House and GOP are talking about doing away with them entirely.
The subsidies were aimed at making EVs "a viable technology," John Barrasso, the Wyoming Republican chairing the Senate Environment and Public Works Committee, said this month. "Well, that's clearly there." But will they remain viable if those subsidies go away?
Sci-fi becomes reality
Google spin-off Waymo has become the first company to launch a commercial ride-hailing service using autonomous vehicles. It's currently offering rides to just 400 customers in the Phoenix area but has orders in for up to 60,000 Jaguar and Chrysler electric vehicles it plans to use in a rollout to other cities across the U.S. Waymo could soon get competition from the likes of Uber, Lyft, GM's Maven and others.
For the moment, the Alphabet subsidiary still uses back-up "operators" ready to take control of its vehicles in an emergency, but it would like to shift to fully driverless operation in the near future. How soon could depend upon legislation that, as 2018 draws to a close, remains tied up in Congress. If it passes next year, it would likely lead to tens, even hundreds of thousands of autonomous and fully driverless prototypes taking to U.S. roads.
Initially, experts anticipate most self-driving vehicles will go into ride-hailing fleets, if for no other reason their high cost. But more and more automakers are rolling out semi-autonomous vehicles which, in some cases, can let drivers take their hands off the wheel for extended periods. Tesla hopes to have a much-delayed, fully hands-free version of its Autopilot system in production in 2019.