Welcome back to the latest episode of The Future of Automotive on CBT News, where we put recent automotive and mobility news into the context of the broader themes impacting the industry.
I’m Steve Greenfield from Automotive Ventures, and I’m glad that you could join us.
I wanted to take the opportunity this week to recognize a great article by John McElroy, who argues that the western auto markets have matured and are actually shrinking in size. And as a result, the competitive intensity that we’re witnessing at the OEM level is going to get worse.
McElroy observes that mature markets like North America, Western Europe and Japan are shrinking, as vehicle sales in these countries are lower than they were 10 years ago. And that many of the legacy automakers have had stagnant revenues over that same time period.
He believes the combination of a stagnating market, coupled with the zero-sum game of automakers essentially trading market share back and forth, has set the stage for price wars that the industry has never previously seen.
McElroy notes that global automotive sales peaked at 92 million vehicles in 2019, and U.S. sales topped out at about 17 million. He believes that the developed markets may never exceed these levels ever again.
Being an automaker has always been a game of scale. With the huge fixed costs of running factories, there’s an incentive to produce as many vehicles as possible, to spread these fixed costs over as many units as possible.
But, in an environment where the total number of vehicles isn’t growing, and with more emerging automakers entering market (many with compelling offerings), it gets that much harder to hold onto market share and maintain the scale needed to continue to be profitable.
We’re seeing this in real-time with GM and Ford struggling to get enough scale in their EV divisions to reverse the huge losses they’re realizing per EV sold. Late last year we heard that Ford was losing $36,000 for each and every EV sold. Hardly sustainable long term.
Then there’s the metaphorical barbarian at the gate, namely the Chinese, who pose an existential threat to the legacy automakers, with a new generation of high-quality and low-priced vehicles. So far, the U.S. is keeping the barbarians at bay with prohibitively high tariffs, but Chinese vehicles on American soil feel like they’ll be inevitable in the long term.
Just this week, we heard that Republican Senator Marco Rubio has proposed sharply boosting tariffs on Chinese vehicle imports by $20,000 to stop the country the threat of flooding U.S. auto markets with cheap Chinese imported autos.
Rubio is also proposing legislation to extend tariffs to vehicles produced by Chinese automakers in other countries like Mexico and limit subsidies for electric vehicles to those that meet stringent North American free trade rules.
Rubio aims to (in his words) “safeguard American automakers and workers against the influx of artificially cheap vehicles from China.”
As a result of these threats, we’re starting to hear that the legacy automakers, including Ford, GM and Stellantis are once again open-minded to potentially sharing costs, and possibly even consolidation.
If history is any guide, automaker mergers are fraught with cultural issues and have rarely realized forecasted efficiencies. But maybe this time will be different.
One thing is for sure: there’s never a dull moment in the U.S. auto industry.
Companies to Watch
Every week we highlight interesting companies in the automotive technology space to keep an eye on. If you read my weekly Intel Report, we showcase a company to watch, and take the opportunity here to share that company with you.
ServiceUp
ServiceUp is an all-in-one repair management platform for independent auto repair shops.
At ServiceUp, they are rewriting the narrative of auto repair by seamlessly blending cutting-edge technology with innovative solutions, transforming the industry for businesses and customers alike.
Independent shops can elevate their vehicle repair operations by delivering a superior digital repair experience. ServiceUp streamlines the repair process, enhancing efficiency, control, and transparency throughout the entire repair journey.
For the first time, shops can manage all their repairs, across their your shops, in one place. From collision to mechanical and everything in between, ServiceUp makes managing vehicle repairs a breeze.
If you’d like to learn more about ServiceUp, you can check them out at www.ServiceUp.com.
So that’s it for this week’s Future of Automotive segment.
If you’re an AutoTech entrepreneur working on a solution that helps car dealerships, we want to hear from you. We are actively investing out of our new DealerFund.
If you’re interested in joining our Investment Club to make direct investments into AutoTech and Mobility startups, please join. There is no obligation to start seeing our deal flow, and we continue to have attractive investment deals available to our members.
Don’t forget to check out my book, The Future of Automotive Retail, which is available on Amazon.com. And keep an eye out for my new book, “The Future of Mobility”, which is almost done, and will be out early this year.
Thanks (as always) for your ongoing support and for tuning into CBT News for this week’s Future of Automotive segment. We’ll see you next week!
