Automotive Industry

Have we finally reached “peak oil”?

Phillip Nones Business, Economics, Manufacturing, Security, Social Commentary , , , , ,

Likely not in crude oil consumption, but the IEA is now projecting that demand for gasoline will never return to its pre-COVID level.

This past week the International Energy Agency (IEA) issued an intriguing forecast about future of gasoline consumption.  If true, it means that the world will have reached its peak demand for gasoline back in 2019, and won’t ever again return to that level.

Of course, with the advent of electric vehicles, the day when gasoline demand would begin to decline was bound to come sooner or later.  But the COVID-19 pandemic has hastened the event. 

During the widespread restrictions on work and travel imposed by most governments in 2020, daily gasoline demand dropped by more than 10%. Some of that demand is expected to return, but the global shift towards electric vehicles — not to mention continuing improvements in fuel efficiency in conventional gasoline-powered vehicles themselves — means that any growth in demand for gasoline within developing countries will be more than offset by these other forces.

In 2019, only around 7 million electric vehicles were sold worldwide, but that number is expected to grow steadily, reaching 60 million annually just five years from now.  Several major car manufacturers have committed to selling electric vehicles exclusively in future years, including Volvo (committed to all-electric vehicle sales by 2030) and GM (by 2035).

As for the demand for crude oil, it is expected to rebound from 2020’s dip to reach as much as 104 million barrels per day by 2026, which would be around 4% higher than the usage that was recorded in 2019.  Asian countries – particularly China and India – will be responsible for all of that increase and more, even as some developed nations are expected to see a drop in their demand for crude.

The implications of these forecasts are far-reaching – as are the questions they raise.  How well will the legacy car companies perform in comparison to the new all-electric car company upstarts?  Can they remake themselves quickly enough to preserve their market position vitality? 

What will the effects of lower demand for gasoline – and a lower pace of growth in demand for crude – be on global climate change?  Dramatic? … or only minimal?

What do the prospects of lessening demand for crude do to the economies (and politics) of countries like Saudi Arabia, Iran, Venezuela and other key OPEC nations?  Will lowered demand lessen geopolitical tensions? … or contribute to even bigger ones?

If you have thoughts or perspectives on these points, please share them in the comment section below.

Tesla gets taken to task by Consumer Reports.

Phillip Nones Branding, Business, Manufacturing, Marketing Research, Sales , , , ,
The Tesla Model Y SUV

Getting decent ratings from Consumer Reports is an important achievement for any product – particularly high ticket-items such as large home appliances and motor vehicles.

Many consumers consider CR to be the Holy Grail when it comes to its product evaluations. Indeed, weak comparative ratings is why so many American car makers have suffered greatly when attempting to compete with their Asian and some European counterparts.

And then we have Tesla.  This American car (and solar panel technology) company is different in that the Tesla product line doesn’t include any traditional gasoline-fueled vehicles.  The company has suffered for that in Consumer Reports’ reliability rankings, as its electric car technology isn’t fully mature – and hence subject to some rather gnarly quality control issues.

Actually, the company had been making some pretty steady progress on the product quality front – until the new Model Y mid-size SUV model hit the market earlier this year. Some of the common complaints about that new Tesla model have been eyebrow-raising to say the least – including some very basic and distinctly lo-tech problems like misaligned body panels and mismatched paint colors. 

As it turns out, the knocks on the Model Y have sent Tesla’s brand reputation plummeting in the CR reliability ratings.  The company now ranks an abysmal 25th out of 26 auto brands.  Ouch!

The Model Y has garnered Consumer Reports’ embarrassing designation “much worse than average.”  But Tesla’s more established vehicle models aren’t perceived to be that much better, actually.  CR rates both the Model S sedan and the Model X SUV as “worse than average,” meaning that only Tesla’s Model 3 is currently holding an “average” rating and the commensurate “recommended” status from CR.

Clearly, this company has substantial work left to do to convince a skeptical public of the quality of its automotive lineup.  Considering how quickly electric cars are being adopted now, it looks like the company will need to clean up its act within the next 24 to 36 months, or risk becoming one of those early pioneers that flamed out — just like happened to many of the early entrant motorcar companies a century ago.

What are your own thoughts about the promise – and pitfalls — of Tesla and its products?  Please share your perspectives with other readers here.

Where Robots Are Getting Ready to Run the Show

Phillip Nones Business, Economics, Employment, Human Resources, Manufacturing , , , , , , , ,

The Brookings Institution has just published a fascinating map that tells us a good deal about what is happening with American manufacturing today.

Headlined “Where the Robots Are,” the map graphically illustrates that as of 2015, nearly one-third of America’s 233,000+ industrial robots are being put to use in just three states:

  • Michigan: ~12% of all industrial robots working in the United States
  • Ohio: ~9%
  • Indiana: ~8%

It isn’t surprising that these three states correlate with the historic heart of the automotive industry in America.

Not coincidentally, those same states also registered a massive lurch towards the political part of the candidate in the 2016 U.S. presidential election who spoke most vociferously about the loss of American manufacturing jobs.

The Brookings map, which plots industrial robot density per 1,000 workers, shows that robots are being used throughout the country, but that the Great Lakes Region is home to the highest density of them.

Toledo, OH has the honor of being the “Top 100” metro area with the highest distribution of industrial robots: nine per 1,000 workers.  To make it to the top of the list, Toledo’s robot volume jumped from around 700 units in 2010 to nearly 2,400 in 2015, representing an average increase of nearly 30% each year.

For the record, here are the Top 10 metropolitan markets among the 100 largest, ranked in terms of their industrial robot exposure.  They’re mid-continent markets all:

  • Toledo, OH: 9.0 industrial robots per 1,000 workers
  • Detroit, MI: 8.5
  • Grand Rapids, MI: 6.3
  • Louisville, KY: 5.1
  • Nashville, TN: 4.8
  • Youngstown-Warren, OH: 4.5
  • Jackson, MS: 4.3
  • Greenville, SC: 4.2
  • Ogden, UT: 4.2
  • Knoxville, TN: 3.7

In terms of where industrial robots are very low to practically non-existent within the largest American metropolitan markets, look to the coasts:

  • Ft. Myers, FL: 0.2 industrial robots per 1,000 workers
  • Honolulu, HI: 0.2
  • Las Vegas, NV: 0.2
  • Washington, DC: 0.3
  • Jacksonville, FL: 0.4
  • Miami, FL: 0.4
  • Richmond, VA: 0.4
  • New Orleans, LA: 0.5
  • New York, NY: 0.5
  • Orlando, FL: 0.5

When one consider that the automotive industry is the biggest user of industrial robots – the International Federation of Robotics estimates that the industry accounts for nearly 40% of all industrial robots in use worldwide – it’s obvious how the Midwest region could end up being the epicenter of robotic manufacturing activity in the United States.

It should come as no surprise, either, that investments in robots are continuing to grow. The Boston Consulting Group has concluded that a robot typically costs only about one-third as much to “employ” as a human worker who is doing the same job tasks.

In another decade or so, the cost disparity will likely be much greater.

On the other hand, two MIT economists maintain that the impact of industrial robots on the volume of available jobs isn’t nearly as dire as many people might think. According to Daron Acemoglu and Pascual Restrepo:

“Indicators of automation (non-robot IT investment) are positively correlated or neutral with regard to employment. So even if robots displace some jobs in a given commuting zone, other automation (which presumably dwarfs robot automation in the scale of investment) creates many more jobs.”

What do you think? Are Messrs. Acemoglu and Restrepo on point here – or are they off by miles?  Please share your thoughts with other readers.

The Quiet Revolution in Automotive Advertising

Phillip Nones Advertising, Business, Marketing Communications, Media, Media Consumption , , , , , , , , , , ,

New Car ShowroomA new milestone is set to be reached in 2014.  For the first time, digital advertising will represent over half of all ad spending in the U.S. automotive sector.

That means that TV, radio, outdoor, newspaper and other print advertising, taken together, will represent only a minority of the roughly $36 billion advertising industry, the second largest advertising category in the United States (behind general merchandise stores).

This is great news for all of us who have suffered through high-decibel radio advertising, TV ads with sophomoric production values, and “carnival barking” poster-like print ads that have been so ubiquitous in the automotive category for so many decades.

A just-released report from media research company Borrell Associates, titled 2014-2015 Automotive Advertising Outlook, notes the following key factors that have influenced the “drive towards digital” in the automotive advertising category:

•     Over the past decade, the number of franchise auto dealers has dropped by ~3,500 (18%), even as the number of new vehicles sold per dealer has grown by ~18%. Fewer-and-larger dealerships reduce marketplace clutter and the clamor for audience attention.

•     Also contributing to reduced clutter, six major car brands have disappeared from the market over the past 10 years: Hummer, Mercury, Plymouth, Pontiac, Oldsmobile and Saturn.

•    The per-vehicle cost of advertising for a new car has declined ~20%.  No it’s only about $500.

•     More than 90% of auto purchases begin with consumer online research. This change in behavior has transformed auto dealerships from acting like showrooms to being more like fulfillment centers.

•     As their “media channel,” dealerships are able to use the Internet to offer special customer deals in the form of rebates, incentives and loyalty programs. These marketing schemes now amount to ~$2,400 per vehicle sold — dwarfing the amount spent on advertising.

Automotive print advertising is declining -- thankfully.
The end of an era? Thankfully, yes.

Thanks to these major trends and developments, we’re now spared the volume and intensity of intrusive automotive advertising that was so common before.

Instead, car dealerships are ready and waiting for us when we’re in the market to purchase a new automobile by using online ads, search engine marketing, social media and other digital platforms to be easily accessible and available when we go online.

According to Borrell, nearly $300 per vehicle will be spent on online advertising this year, whereas just a little over $200 will be spent on traditional advertising.

Five years ago, online ad spending was about one third the amount of traditional advertising.

The information-rich web is also changing another aspect of the car buying experience:  It’s making the job of automotive sales easier rather than more difficult.

Here’s proof:  Only a few years ago, more than half of all car shoppers would end up not buying a vehicle.  Today, that proportion has now dropped to just 25%.

When customers come into the showroom today, they’re better informed, they know what they want to purchase, and they’re up on various the options and pricing deals.  In short, they’re ready to buy.

Fewer intrusive ads … better educated consumers … less stress on sales personnel … satisfied buyers.  It seems like a win-win for everyone, doesn’t it?

The Automotive Comeback Story of the Year?

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2010 Chrysler Town & Country Minivan
Chrysler's Town & Country minivan: On top of the charts again.
Not surprisingly, the ongoing saga of the GM bailout and subsequent re-listing of General Motors on the New York Stock Exchange was the biggest automotive news story of 2010.

But in what may be the more surprising comeback story, the Chrysler Town & County minivan is poised to regain the top spot in a segment that Chrysler once dominated, going all the way back to when the first minivan rolled off the assembly line in the early 1980s.

But in recent years, beset by organization troubles along with spirited competition from other domestic and imported automakers, Chrysler had lost its first-rank position to the Honda Odyssey while its overall share of the minivan market declined.

For December, the Town & Country’s unit sales were over 102,000, compared to the Odyssey’s ~98,000. Chrysler’s sister brand, Dodge, racked up minivan unit sales of ~89,000, the same as the Toyota Sienna. That puts Chrysler on pace to lead the minivan pack for all of 2010 and reclaim the sales crown.

It’s no secret that Chrysler considers the minivan to be one of the keys to its brand identity – and a key component of its comeback strategy. “Our goal is regaining leadership. We consider we own it and we need to regain what once belonged to us,” the Detroit News quotes Olivier Francois, head of the Chrysler brand, as saying.

[Another reason Chrysler might have lost its edge over the years in the “minivan derby” was a perception of quality issues and the way its vehicles handled. But speaking as someone whose family has driven Chrysler minivans since 1990 – and currently owns four Dodge Caravans spanning ten years’ worth of model years – we’ve never encountered any major quality issues beyond the expected maintenance requirements for vehicles we routinely run for close to 200,000 miles each.]

If a car maker is making a major push for product sales, it makes sense to place more inventory in the showrooms for consumers to buy. Significant “upgrades” to Dodge and Chrysler minivans are being introduced for 2011, and greater numbers of vehicles will be delivered to dealerships, it’s being reported.

Of course, no one believes that Chrysler’s goal to maintain the sales crown for minivans will be slam-dunk easy. Japanese automakers are introducing their own all-new minivan models in 2011.

And why not? They’re seeing an increase in consumer interest in the minivan segment just like everyone else. While no one expects sales of minivans to return to the stratospheric levels of the late 1990s, stories about the “death” of the minivan that were being published in more recent years have now completely disappeared from the newswires.

One of the interesting questions Chrysler will be facing in the coming years is whether to continue to cultivate two separate minivan nameplates or to consolidate them into one. Chrysler has tended to lavish more “design” attention on the Town & Country and more “performance” focus on the Dodge Caravan. As a result, the Town & Country is now more popular with female consumers and the Caravan more popular with men.

This “gender-focused” targeting finds its penultimate manifestation this year with the introduction of Dodge Caravan’s so-called “man-van” – a high-performance version of the Grand Caravan featuring a “macho” all-black interior with red stitching. Can’t wait for one of these show up in the auto showroom!

Let’s Revisit the Yugo!

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Yugo advertisementThose of us “of a certain age” remember well when the Yugo car was introduced to America with great fanfare. In 1985, the prospect of purchasing a small vehicle with an even smaller price tag (~$3,990) was irresistible to many – even with the high gasoline prices and gas lines of the 1970s looking more distant in the rearview mirror. For those on a budget, who could resist the allure of buying a new car for $99 down and a $99 monthly payment?

Here’s a startling statistic that bears this out: When the Yugo was introduced in the summer of 1985, more than 1,000 of them were sold in one day. In fact, the Yugo was to be the fastest-selling first-year European import ever sold into the U.S. – a record that stands yet today.

But in just a few short years, the Yugo would go from being a star to being a dud … from being the “it” car to being the butt of jokes.

How could this happen? The answers are found in a just-released book “The Yugo: The Rise and Fall of the Worst Car in History,” written by Jason Vuic (ISBN-13: 978-0809098910). This pithy, irreverent volume takes readers on a merry romp through its 250+ pages … and things never have time to become dull.

One of the earliest signs that the Yugo might not be all it was cracked up to be came when its American investors decided to drive a Yugo car across the country. What better way to test the product? In retrospect, they should have heeded the clear warning signs: the new car broke down not once … not twice … but three times during its ~3,000 mile journey.

Undeterred, they plowed ahead, forming a national dealer network and trumpeting the Yugo as a fresh, affordable European car that came with a small price tag and a big attitude.

But the reviews were scathing from the get-go. The car broke down during a road test by Motor Trend, leading the magazine to conclude that the vehicle was “hard to recommend at any price.” Some customers reported that their new Yugos came off the dealer lot with rust spots already showing in the trunk. That plus noisy brakes … rough-riding clutch … and a few other deficiencies not normally experienced until any other car is years old.

Predictably, it didn’t take long for the magic to wear off. By the time of Saturday Night Live’s famous parody of the Yugo – its fake TV ad for the Adobe clay car (at $179 apiece) – Yugo dealers across America were already closing their doors.

Actually, what’s most surprising to read is that the Yugo actually continued to be manufactured in Europe as late as 2008.

In retrospect, I suppose the Yugo wasn’t a complete waste of time. It helped us realize – once again – that despite the enduring appeal of a low-cost alternative, there’s no substitute for producing a quality product.

It’s also given us 25 years of great jokes.

Yet Another Headache for the U.S. Auto Industry

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Several Mexican drug cartels are very active along the U.S. border.
Several Mexican drug cartels are very active along the border -- and U.S. auto parts plants are getting caught in the crossfire.
Now here’s an interesting confluence of events that at first blush seem totally unrelated to each other: the U.S. automotive industry and the Mexican drug wars. As if the auto industry didn’t have enough problems on its hands, now it’s finding itself in the crosshairs of the Mexican drug cartels’ shootout with the government in towns along the U.S. border.

Ciudad Juarez, Mexico is a factory town that happens to have its share of U.S.-owned auto supply factories, drawn to the region by cheap labor rates averaging less than $1.50 per hour. Always a tough city, Juarez has gotten a lot more dangerous in recent months. The raging violence peaked several months back with drug gangs killing six police officers in one single week before the Mexican government sent military troops in.

Civilians and foreign nationals are also at risk, it turns out. In January, a plant manager for Detroit-based auto parts manufacturer Lear Corporation was kidnapped on his way to work in Juarez, and a $1 million ransom was demanded for his release. Shortly before this drama unfolded, the firm’s local facilities were attacked by a band of gunmen armed with assault weapons; reportedly, they were after employees’ Christmas bonuses plus proceeds from the plant’s ATM machine.

Auto parts maker Delphi has also reported a number of disturbing incidents, including the attempted kidnapping of one of its female executives.

So, in addition to being faced with a blizzard of bad news on the domestic front stemming from the collapse of automotive sales, the auto parts manufacturers are encountering an entirely different set of bad conditions on the border. In response, they’re taking special precautions, including adding more security (and vetting security personnel more carefully), removing ATMs from plants, restricting local personnel travel to daylight hours only, and even going so far as to keep their CEOs away from the region entirely.

But you can only wonder how much longer things can go on like this if the Mexican government doesn’t gain the upper hand in quelling the danger and the violence — and soon. After all, there are nearly 1,000 auto parts makers in the country, ~70% of which are subsidiaries of U.S. companies. That makes it very hard for the military to patrol so many locations against the seemingly random attacks, kidnappings, and other acts of violence.

At some point, the prospects of cheap labor and low costs will run smack up against basic safety, security and peace of mind. Other Latin American countries face similar issues … so might this mean a shift of some of these operations back to the United States? Now, that would be an interesting twist!

We shall see.

Skyscraper Graveyard

Phillip Nones Uncategorized , , , , , , , , , , , , , , , , , , , , , , , , , , ,

apartment-buildingBook TowerOn a trip to Detroit a few days ago, my family and I stayed downtown in one of the city’s newly renovated grande dame hotels. The 1920s-era Fort Shelby Hotel, now part of the Doubletree chain, reopened last December after being closed for more than 25 years. It’s a jewel of a property stuck in the middle of one of the most depressed cities in America. Reportedly, a whopping $80 million was spent on its renovation.

The timing couldn’t have been worse. Just up the street is the even more palatial Westin Book-Cadillac, which was the world’s largest hotel when it first opened in 1924. It, too, stood vacant starting in the early 1980s, miraculously avoiding the wrecking ball before being rescued in a $200 million+ renovation and reopening this past October.

So what will help fill the rooms of these showcase hotel properties? If a flood of reservations actually materializes, it will be for the myriad lawyers, accountants and government officials descending on the city to pick apart General Motors and Chrysler Corporation.

The city of Detroit can’t seem to catch a break. First, there’s the real estate crisis that has seen property values plunge even faster than the national average. Today, the city’s median home sales price is below $10,000, which has to be the record low for a major U.S. city.

Next up, the spectacle of dilapidated infrastructure, a dysfunctional school system plus governmental corruption, nepotism and favoritism run amok – all culminating in Detroit’s mayor being sent to prison.

Now comes the implosion of Detroit’s auto industry that has sparked the nation’s renewed attention on the crumbling city, including human-interest television reporting and lurid photo essays like the one just published in Time magazine.

Sadly, this is Detroit. Riding the People Mover, the 2.5-mile monorail system that loops the perimeter of downtown, one can peer into the second-story levels of building after vacant building. It’s truly a metaphor for the entire city … and a peepshow for the rest of the nation.

Is there a natural bottom? The investors in Detroit’s old hotels seem to think so. But you have to wonder, would those investors have moved forward with these initiatives knowing what they know today?

It was photographer and social commentator Camilo Jose Vergara who suggested more than ten years ago that the empty skyscrapers of downtown Detroit be preserved in their current state as a memorial and monument to a vanishing industrial age. Of course, the city government leaders were horrified at the idea and objected loudly. But really, what other use could they possibly come up with for these relics – silent and stark reminders that a city once the nation’s fifth largest has shrunk in under 50 years to less than half its former size.