The United States is ranked at the sixth position in terms of production of automobiles. It is home to global vehicle auto parts manufactures too. It is world’s second largest market for automobile sales and production where vehicle sales reached 17.1 million units in 2017.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Trends
- Industry Challenges
- Technology Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
Automotive industry is a sector concerned with manufacturing that produces and sells motor vehicles. This industry is one of the oldest in the history of industrialization in the world and at present as it leaps to 21st century, it has continued to expand worldwide with early markets situated in countries like North America and Japan.
At present, most of the automobiles are with an internal combustion engine that require fuel to operate. However, the latest innovation in this sector include electric models and self-driving cars which are likely to rule the future automotive market in the world.
There are basically three types of motor vehicles produced and sold by this sector which are follows:
- Passenger cars – A passenger car is a road motor vehicle, other than a motor cycle, intended for the carriage of passengers and designed to seat no more than nine persons including the driver seat. For example-SUV, crossovers, sedan etc.
- Light commercial Vehicles (LCV) – They are being purchased to carry goods from warehouses to the consumer. The gross weight value of the vehicle is not more than 3.5 metric tonnes. This has created a new business model for many companies. For example- mini vans
- Heavy commercial Vehicles (HCV) -It is also known as large goods vehicle. The gross weight value of such vehicles is more than 3.5 metric tonnes. For eg- trucks.
The United States is ranked at the sixth position in terms of production of automobiles. It is home to global vehicle auto parts manufactures too. It is world’s second largest market for automobile sales and production where vehicle sales reached 17.1 million units in 2017. There are automobile manufacturers from all over the world that have opened their subsidiary companies in USA and these plants have produced and sold vehicles in the market of USA.
More than 75 billion dollars have been invested for production of plants and currently the automobile sector of USA supports 130,000 American jobs. Most of the auto manufacturers in USA are dedicated towards intensive research and development activities before they move on to building prototypes.
The design, testing and engineering of the automobiles are performed with state-of art technologies and are of world-class quality. The automotive industry is also at the front position when it comes to innovation. $18 billion annually is spent ton R&D activities related to automobile manufacture in US alone.
In 2017, United States has exported about 2 million new light vehicles, 130,000 medium and heavy trucks to more than 200 countries around the world. The additional automotive parts were also exported with an export value of $85.6 billion respectively.
The country has an open investment policy, a large customer base, highly skilled manpower, professional executives, incentives provided by the government and necessary infrastructure to build the ultimate automobile which excels the expectations of 21st century consumers.
In years to come, USA can be the automobile manufacture hub for the manufacturers from all around the world who strive towards innovation, technology use and quality output in their automobiles.
- Distract Driving
One of the biggest problems which exist in USA is the distract driving where people are consistently using smartphones while driving. As more numbers of smartphone addicted individuals are on rise the more road accidents are likely to happen in future.
Any of the automakers don’t have any concrete plan to address the issue till date. Although technologies such as Apple Car play and Android auto are directed towards solving the problem they are far from perfect.
The manufacturers can build an entirely new model by integrating smartphone disablers which restricts a person who is driving the car to use smartphones or other devices while the vehicle is in motion.
Top Market Opportunities
Crossover Vehicles are the new in thing in automobile market. It is a double advantage vehicle that provides comfort of SUV and cost-effectiveness of crossover vehicles. They are versatile in nature and has become the new hit among people.
Also, a sedan and SUV mix of crossover vehicles are most popular as people don’t have to trade-off style for comfort. It includes both. The technology of building such vehicles requires a lot of experimentation and time. the automakers must drive their focus towards developing these type of models as the demand for these are on consistent rise.
As millennial’s are the consumer group that mostly control most of the product segment of the vehicles. The X generation are not far behind as the automakers have an entirely huge opportunity to cater to the needs of this customer segment. As this generation is moving closer to their retirement, they will have a need to travel and development of the multi-terrain vehicles will be the excellent way of addressing to their requirements.
These vehicles provide comfort and convenient use even at complex road paths. They have additional features such as five-door utility, heated leather seats and usually consume less fuel so all these features are quite appealing to the X generation people. Thus automakers should focus towards opening up a new revenue stream by developing such model.
Amidst the slow growth of the US automotive market, the sales decline of 2-3% noticed in 2017. Future growth seems to be sustained if not grow aggressively because of the demand from key markets such as Texas and Florida.
Other factors supporting the steady growth are GDP growth and housing starts. Other reassuring factors include an upsurge in homeownership among young adults and single-family building permits being at a 10-year high. Thus, these trends are likely to keep up the demand of autos overall.
Another major driver for the auto industry would be the development of new models of light truck vehicles as this would include features such as better driver-assist technologies and infotainment features to improve their competitive position.
Also the CUV, crossover utility vehicles are on rise. They are a new mix model of sedan and SUV which has more space, better interiors, and improved fuel efficiency and ride handling which is definitely going to lure consumers to buy it. Thus stronger sales of these segment of motor vehicles is likely to offset the risks present with profitability and sales of overall automotive market of the country.
The rising interest rate in the country is the increasing concern among the automakers in USA. The three major interest rate hikes were encountered in 2017 which is why the consumers have less confidence to buy new car. As per a survey conducted in the country, 5% of the consumers were willing to buy a new car in relative to 6.3% who rather preferred to buy used car. Whereas, 21% consumers were unsure about whether to first-hand or used car.
The interest rate is further expected to hike by the end of 2018 and due to the uncertain interest rate the auto sales over next two years is predicted to stifle reducing overall demand and slow growth of the sector within the country.
Another concern is the rising fuel prices. The oil prices have been identified at highest point since three years and as the trend is likely to continue the segment which gets most troubled are the trucks. Although, the automobile sector in US always provides incentives to drive sales if the it goes down severely, but the two way impact created by the fuel prices and interest rate hike can definitely slow down the sales within the country until mid-term.
The pressure upon all the executives of top automakers in USA is likely to hail as the company Fiat Chrysler Automobiles is planning to divide the company apart by staging IPOs for Maserati and Alfa Romeo and most certainly selling Jeep in 2018.
This will lead to huge response from the Wall Street. As GM plans to keep its organizational structure intact but the pressure is going to be built upon the executive of the company to release their high-tech high-growth division Maven and self-driving entity Cruise and this strategy has to be used to deliver more returns on stock price.
Ford on other hand whose stock price is cheaper than the other rivals hasn’t delivered any massage to the stockholders which is most likely to keep the stock prices of the company stagnant. Thus, the challenge for all the automakers at present is to upsurge their appeal in the stock market.
Since past couple of years people have less emotional attachment to their cars and this is the major reasons car sharing has become popular trend. By 2030, one out of every ten cars sold will be a shared vehicle. This attempt is to go green and reduce carbon footprints in the planet.
Some of the car sharing will receive customization in 2018 for instance, Uber will improve their customers riding experience by providing entertainment and also by offering snacks and drinks. The culture of Uber is consistently in rise in USA and this is the biggest non-automaker player which is up to disrupt the automotive market in the country.
The top 5 technology trends in automotive industry are focused towards creativity, safety, eco-friendly and diversification in various segments. These are not only trends but part of business strategy planned by the automakers for their success in near future
- IOT– Also known as internet of things is a technology whereby the devices in two different cars can be connected thus making cars connected as whole. The connection will be enable through means of internet and the adoption of this technology is expected to rise gradually over next 5 years.
- Integration of cloud in automotive– This is a major trend at present is cloud technology. The industry already has updated to version 4.0 where the automobile production process starting from design and operation till post servicing is conducted through the use of cloud system. The engineering activities are also in a pipeline to be integrated into cloud system.
- Block chain system– It is a technology that has been developed to mitigate the problem of counterfeit parts of the automobiles. It is a system used to rectify this problem by identifying if any parts are counterfeit and thus help companies to remove it which also improves overall pricing strategy of the product. This system will enable fair pricing of cars which is essential for both manufactures and consumers.
- 3D printing– Urbee is one 3d printing software that was designed to print prototypes of cars under development process. This will allow the manufactures to receive information and make necessary changes before building the actual prototype. It is cost-effective and has safety benefits than the traditional prototype building which takes lots of time and money.
- Big data– By 2020, all cars in USA will be enabled to communicate. Car manufactures such as Ford have already launched a platform whereby the cars need to be connected to mobile operating systems like Android and iOS. In near future, increasing number of cars will have interconnected features with mobile phones and more apps will be developed to offer necessary utilities in this cross platform.
Automotive Industry of USA is one of the heavily regulated sectors within the country. The regulations are mostly directed towards incorporating safety features and enhance overall performance of the vehicle. The government of USA has come up with these regulations to benefit consumers, environment and auto manufacturers.
- Safety related regulations
Government of USA has stepped in whenever manufacturers of automobiles have been identified with compromising against customer protection. Some of the safety requirements which was made obligatory upon the automakers to have in their products were seat-belts, airbags and crumple zones.
However, the companies have to cope up with the limitations in design due to compliance with safety requirements. Further, the design options also become limited when safety requirements are incorporated.
- Fuel efficiency
In USA, the Corporate Average Fuel Economy (CAFE) is a set of national standards for automotive fuel efficiency. The standards instigated in 2012 was to increase the fuel efficiency in cars by 54.5 miles per gallon by 2025. The development and implementation of this new technology has been done to ensure that economic value can be provided to consumers and also ensure the safety of usage.
- Emission laws
Government regulations to control emission issues are not constrained to the United States. As many manufactures in USA are shipping their vehicles worldwide, the laws have been providing coverage for criteria of emission laws and vehicles to be street-legal in foreign countries as well. The regulation has definitely helped the US automobiles to receive good reputation and appear on the bottom side of the list of the vehicles that emit highest carbon-dioxide.
But on the downside of the regulation, it affects the design process as these designs require catalytic converters and other devices which cost tons of money to develop and produce in a mass level.
Other Key Market Trends
- At present, the electric vehicle or EV sales account up to 1% of total automobile sales. In USA alone, three vehicles are driving the growth of electric cars and these are Chevy Bolt, Nissan Leaf and Tesla Model 3. All the three cars are expected to sustain the automobile sector by driving their sales in the upcoming year 2018. Leaf is predicted to post a sales somewhere at a range of 10,000-15000 units for 2018. Bold could sell up to 50,000 units and Tesla Model 3 which is the most disruptive player as the pre-order demand has reached soaring high up to 400,000. Full production is going to reach only by the end of 2018. Despite of the high sales projection the overall EV expansion is likely to be limited as the prices are not competitive. A consistent demand can be fueled by affordable offerings by the manufacturers or else the sales are more likely to remain flat.
- Another trend that is on the rise are the self-driving cars. Uber, Waymo, Tesla, General Motors are few among many others that have made a development of business models where the cars have been built with autonomous systems that is suitable for highways or hailing fleets. However, full autonomy is not possible there are companies striving to work towards achieving such standards in near future. Some of the self-driving car models in USA are: Cadillac’s Super Cruise, Tesla Autopilot and GM’s Cruise division which is under process of discovering a fully-self driving car.
- The safety features in the vehicles is likely to drop down in luxury or high end cars as more advance forms of safety features are being introduced in these models like lane-keep assist to automatic braking etc. The airbags and other common safety technologies will become cheaper and available in newer mass-market vehicles.
Market Size and Forecast
The statistics reveal that the global sales of passengers cars stood at 79.2 million units as of 2017 and the figure is expected to reach 81.5 million units by the end of 2018. The globalsales of commercial cars stood at 23.85 million units as of 2017.
In USA alone, the passenger car sales together stood at 6.08 million units in 2017 which has decreased from the 6.87 million units in that of 2016.Similarly,the heavy weighted vehicle sales stood at 11.1 million units and the overall auto sales in 2017 stood at 17.6 million units which retreated from the previous 17.9 million units of 2016 also the highest sales ever recorded in the automobile sector in USA.
At the end of 2018, the production of the motor vehicles in USA is going expected to be somewhere between 16.6-17.1 million units with a rise of 0-2% from 2017 and whereas by 2019 the production units are projected between 16.5 to 17.0 with a probability to fall by 0.5%. Further, the GDP growth is expected to increase at a rate of 3.1% from 2017 to 2019 in contract to GDP growth of APAC region which is around 5.0% levels.
After a record high in 2016, 2017 revealed a slight decline in auto sales and the outlook is not quite contrasting for 2018. The three major auto manufacturers in USA have predicted a decline in sales of the heavy truck and passenger car segments.
Ford forecast a decline below current levels of 17 followed by Fiat Chrysler which project sales to reach approximately around 17.3 from the present 17.5 whereas General Motors outline all the macroeconomic factors that could affect the future of the sector negatively such as, inflation, wage growth, continued GDP growth, fueling interest rates and hiking oil prices which could bring down the sales figure to lower than 17 million units in 2018.
All the foreign and domestic players in the market have prepared themselves for sales decline in upcoming years. However, the economic growth of the country presents a support and positive outlook for the sector as the companies can offset the disadvantage in the domestic market and increase their market share and revenues by tapping onto the opportunities available in foreign markets until the external environment of the country recovers.
Further, the US is transitioning into new phase where the monetary policy of the country is expected to normalize increasing the Federal Reserve’s borrowing which is likely to reduce margins for auto captive finance operations.
Thus, automakers have to rely on the capital market for financing operations given that they receive high favor from the public shareholders. Further, the automakers have to consider for production cuts and provide deals to manage demand-supply and inventory levels as long economic trend of USA suggest a GDP growth decline to 2% over next 10 years which is likely to decrease productivity, labor availability within the country.
The automobile market of USA is highly fragmented as more than 20 significant players are present in the sector.
However, the industry is mostly ruled by domestic companies such as General Motors, Ford and FCA followed by only one foreign player that is competitive: Toyota USA which is the US subsidiary of Japanese automobile manufacturer Toyota. Other players operating in the market are mostly foreign players from all across the world such as Hyundai (South Korea), Honda (Japan), BMW (Germany) etc.
- General Motors Corporation (GM) is the world’s largest auto manufacture with diversified models and product lines. It not only produces exquisite model of motor vehicles but also holds stakes in other foreign auto manufacturers such as Isuzu Motors Ltd., Suzuki Motor Corp, Fuji Heavy Industries Ltd., Fiat Auto, and GM Daewoo. It has most extensive global alliance network. Although, company has faced many periods of rough patches it is always successful in retaining its number one position not only in USA but throughout the world
- The Toyota motors division in USA has the most widespread distribution channeled through 1,500 dealerships all in the US. The organization’s TRD (Toyota Racing Development) is an organization dedicated towards developing design, engineering and technology of racing cars in USA. It has its own sport utility vehicles such as Sequoia, the FJ Cruiser, Land cruiser, the 4Runner, the RAV4 and the Highlander as well as the Tundra and Tacoma. Different models are catered to different segments of consumers based on the features by providing emotional connection to the car.
- FCA US designs, engineers, produces, and sells vehicles under the Chrysler, Dodge, Jeep, Ram and FIAT brands, and SRT performance vehicle designation. It is one of the most creative automakers and is ranked as seventh biggest in the world. Within USA, it has 37 manufacturing facilities, 12 regional centers and 22 parts distribution centers. In all, the company has 81,685 employees and 8 training & test facilities.
- American Honda is one of the most innovative automakers as it operates 14 innovative R&D work offices and design centers. There are total 15 unique models of US made Honda and it exports these motors to 100 different nations. It also produces customized motors and provides personalized services to the clients such as support plans, maintenance schedules and online payments to its members; and finance options.
- Nissan USA is one of the company that offers wide-range of cars addressing needs of consumers, for example, electric cars, sedans, sports cars, hybrids and SUVs, crossovers, minivans and vans, trucks and commercial vehicles, and different accessories. It has also been certified every year by the U.S Environmental Protection Agency as an ENERGY STAR Partner of the Year since 2010 for their commitment to enhance the Green Program by coming up with more eco-friendly vehicles.
Key Market Players
Top 10 automobile companies in USA according to revenues, profits and sales figure are as follows:
- General Motors
- Toyota USA
Overall, the North American region is going to face a steady growth of demand for passenger cars in upcoming years. However, the real opportunity lies in the Asian markets as the Asian automobile sales have doubled since past seven years. The growing affluent economies and rising purchasing power among individuals in the APAC region is going to drive the demand and future sales of cars.
The sales of China’s passenger vehicles have quadrupled since 2017 and the leading car manufacturers of USA such as General Motors and Ford are also major suppliers of passenger cars in this region. Thus, other car manufacturers in USA should also look for overseas market to establish a dominant position in production & sales and establish as a global brand.
- CBU – Completely Built Unit