The auto industry has enjoyed record sales years for much of this decade, but the party is expected to come to a close next decade.
Bank of America Merrill Lynch’s senior auto industry analyst John Murphy said the industry will likely face a 30 percent decline come 2022, The Detroit News reported last Wednesday. The drop won’t be a sudden one, but demand will continue to soften. The auto industry, like almost every other industry, is a cyclical one.
“The industry is going through this process of what it is, what it should do and how it should operate, and what its current business strategy should be, and it’s a challenge,” Murphy said.
He added automakers are working to get their “core business” in good shape ahead of a downturn, which will leave automakers in better shape to continue investing in future technologies. Namely, those are autonomous cars and more electric vehicles.
This is the exact reason why GM said it executed a restructuring plan now, rather than waiting until things dip. It avoids the surprise factor ahead of time and saves money for when the automaker will likely need it most. The good news, Murphy said, is that the industry is expected to rebound later next decade and provide healthy growth again.
What remains unknown is the future of crossovers. The analyst said there’s a very good risk of overcrowding the market with crossovers to a point where they don’t pull profits as the vehicles do now. They could become the very thing they set out to replace: passenger cars. Especially smaller crossovers.
He also didn’t paint a blooming future for electric cars and autonomous vehicles just yet. Come 2025, market penetration for electric cars is expected to only be 5 percent of the market. While that’s up from the blip of sales they make up now, it’s hardly a revolution. Of course, other factors could change that along the way.
As for self-driving cars, they’ll need to operate for less than $1 per mile before automakers and companies can really start pushing them into the mainstream for ride-hailing services.
Source: The Detroit News